What are Wrapped Tokens?
Wrapped tokens are digital assets that have been tokenized on a specific blockchain while representing another cryptocurrency. Their primary purpose is to enable interoperability between different blockchain networks.
Key Features of Wrapped Tokens
- Interoperability: Wrapped tokens bridge assets across different blockchains, enabling users to leverage assets in diverse applications.
- Liquidity: By wrapping tokens, users can access various decentralized finance (DeFi) platforms, increasing liquidity and market efficiency.
- Backing: Each wrapped token is usually backed 1:1 by the original asset, held in trust or smart contracts, ensuring that they maintain value.
Examples of Wrapped Tokens
One of the most well-known wrapped tokens is Wrapped Bitcoin (WBTC), which allows Bitcoin holders to use their assets within the Ethereum ecosystem. Similarly, Wrapped Ether (WETH) enables Ethereum to be used as an ERC-20 token.
Conclusion
Wrapped tokens are essential for the growth of the DeFi ecosystem, as they reduce friction between different blockchain networks, ultimately promoting a more integrated financial system in the decentralized space.