What Exactly Is A Wrapped Token?

4 May 2022

Tokens that have been "wrapped" to function on several blockchains are known as wrapped tokens.

Wrapped Bitcoin, for example, is a clone of Bitcoin that may be used on many blockchains, such as the Ethereum blockchain.

Wrapped Ether is an Ether clone that may be utilized on various blockchains.

ERC-20 tokens are sometimes referred to as "wrapped tokens," which indicates that they are both a token and a mechanism for distributing them.

Wrapped Tokens were developed due to dApps on the Ethereum network that couldn't run on the native cryptocurrency. Wrapping tokens allow individuals to convert their ETH into ERC-20 tokens.

As a result of wrapped tokens, it is possible to borrow bitcoins and Ether on the DeFi system, for example, because of the greater interoperability between different cryptocurrencies. 

Decentralized services will benefit from the increased availability of crypto assets, which enhances the value of crypto assets.

WBTC is the most widely used wrapped cryptocurrency, an ERC-20 version of bitcoin. 

To utilize Ethereum's decentralized finance (DeFi) protocols, you need to wrap your bitcoins in a synthetic asset with the same exposure to bitcoin price.

When it comes to making bitcoin investments, this opens the door to things like Yearn Finance's liquidity pools and Uniswap, for example.

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