If you are familiar with the investments in the crypto platform, you must have surely heard about Wrapped Ethereum. Yes, you guessed it right, we are talking about tokenized versions of cryptocurrencies. They are, in fact, pegged to the value of the original coin. Also, you can unwrap it at any time you want. So if you are wondering what is Weath, you can stay tuned to this blog, as we will be discussing some of the significant aspects right here. Just like other digital currencies have tokenized versions, Ether has this version as well.
In fact, it is presently one of the popular cryptos among investors. Therefore, a lot of them have already started wondering about the predictions of the price of Ethereum in the upcoming years. Let us now discuss some of the significant points concerning Wrapped Ethereum!
What is Wrapped Ethereum Or WETH?
If you are going to invest for the first time, you might feel a bit confused as to what is Wrapped Ethereum all about. Well, you are at the right place as we will be discussing every detail about it right here. As the name suggests, WETH or Wrapped Ethereum is a wrapped version of Ether.
Just like tokenized versions of digital currencies like Bitcoin and others, Wrapped Ethereum is similar to them. Almost every major blockchain has a wrapped version of its native crypto. In fact, one of the biggest advantages of these tokens is that they can be traded to the value of the original coin, and you can unwrap it at any time you want to.
Do you know their mechanism is a lot similar to stablecoins? Moreover, these coins are essentially “wrapped USD.” It is through this you can redeem dollar-pegged stablecoins for FIAT dollars at any time.
What is the Significance of Using Wrapped Ethereum?
One of the reasons wrapped coins are increasingly becoming popular nowadays is that they can solve a great problem. Do you know what it is? Well, it handles the problem of low interoperability of blockchains. It also ensures that you cannot use the native coins of one chain on another chain.
For instance, if you are an investor, you cannot use Bitcoin on the Ethereum blockchain. At the same time, you cannot use Ether on Bitcoin or Avalanche. Also, wrapping coins solves this problem in another way. It is through tokenizing them and applying the blockchain’s token standard to the tokenized version of the original Weth crypto.
Do you know in Ethereum, almost all fungible tokens follow the ERC-20? Yes, the community developed it in 2015. The reason behind its creation was to have a standardized set of rules for tokens on Ethereum. In fact, it simplified new token launches and made all tokens on the blockchain comparable to one another.
Moreover, they developed Wrapped Ethereum to increase interoperability between blockchains and make Ether usable in daps. So you can well understand the significance of this Wrapped version of Ethereum.
How Does Wrapped Ethereum Work?
Do you know wrapped tokens need custodians to hold the collateral? So if you want to wrap Ethereum, a custodian will hold your Ether and provide you Wrapped Ethereum in return. However, custodians can be either merchants, multi-signature wallets, or just a smart contract.
So you can send your collateral to the custodian, and a wrapped version of your coin will be minted. For instance, with Wrapped Ethereum, you can also go to a DEX like Uniswap and swap your Ether coin for transforming it into Wrapped Ethereum.
Later on, they converted the original Ether to Wrapped Ethereum; however, the value remains the same. It is highly similar to how dollar-pegged stable coins work. So you can well understand the mechanism of Wrapped Ethereum.
As discussed above, wrapped tokens like WETH, WBTC, etc., allow tokens to live on multiple chains. Let us explain it in detail right here by what we mean by this. Suppose an investor wants to hold Ether. However, he uses it on the Avalanche chain; they would need Wrapped Ethereum. The investors require it because of price exposure to ETH while not using the Ethereum chain.
In fact, this increases the blockchains’ liquidity and capital efficiency. This is because it allows investors to wrap assets and deploy them on other chains. Also, wrapping coins can also reduce transaction times and fees. At the same time, Ethereum suffers from high gas fees. Therefore, wrapping it on another blockchain allows investors to trade Ether at an affordable rate.
Moreover, wrapping coins means investors have to go through a custodian, and therefore, it involves additional risks. At the same time, not all chains can wrap every token. However, we can find WETH exists in the most popular blockchains.
Summing it Up
So as we conclude, we can say that Wrapped Ethereum is presently the hot favorite of most investors. This is because of the above factors. It is one of the top rank holders in the crypto platforms. You can read through the blog to get a complete idea about every detail of this wrapped version of Ethereum.