What is a Wrapped Token? A Quick Guide Into Tokenized Assets

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Key takeaways

  • Wrapped tokens are tokenized versions of cryptocurrencies like BTC or ETH held on the Ethereum blockchain. Their price is always the same as that of the original cryptocurrency.
  • These tokens have shown major growth over the last months. They represent an important part of DeFi.
  • Tokenized Bitcoin is a lot more compatible with the Ethereum ecosystem than the original BTC. This makes wrapped Bitcoin easier to use within DeFi.

What is a wrapped token?

As DeFi is on the rise, the demands to integrate Bitcoin and Ethereum into this ecosystem have been growing. These major cryptocurrencies would bring large liquidity and momentum into DeFi. However, decentralized finance is based on the Ethereum platform, and most of the DeFi assets are ERC20 tokens — which BTC and ETH are not compatible with.

Wrapped tokens solve this problem by bringing major cryptocurrencies to the Ethereum network. Wrapped Bitcoin (wBTC), Wrapped Ethereum (wETH), and dozens of other wrapped tokens allow for operations with tokenized BTC and ETH on Ethereum. These tokens are backed by the underlying cryptos’ price which makes them their complete ERC-20 doubles.

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