How Do You Make a Wrapped Token?

4 May 2022

Wrapped tokens are created by bringing together three parties: the buyer, the seller, and the custodian. 

The user requires tokens, a merchant distributes the wrapped tokens, and a custodian preserves the underlying assets while minting the wrapped tokens.

Let's take a look at how a WBTC-wrapped token is created.

To learn more about the WBTC, the consumer will speak with the retailer.
WBTC will be minted at the merchant's request, who will re-contact the custodian.

We'll send the WBTC to your Ethereum wallet whenever the retailer sends you a Bitcoin equivalent. An AML and/or KYC check may be needed from the merchant throughout this process.

Finally, several crypto exchanges allow consumers and merchants to swap BTC and WBTC.

Unwrapping a token or redeeming it is also an option. Custodians release BTC in response to burning requests, which merchants send to unwrap a token.

Tokens other than bitcoin wrapped have their uses. Another well-known wrapped token is 0x labs' wETH (wrapped Ether), which was announced in 2017.

WETH, in contrast to wBTC, enables users to trade synthetic Ether on the Ethereum blockchain directly, rather than just moving bitcoin to non-native blockchains (currently Ethereum and Tron).

In other words, by creating an ERC-20 token out of Ether (ETH), the cryptocurrency complies with the decentralized financial norms set out by the Ethereum network. There is no ERC-20 standard for the Ethereum coin, ETH.

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