What is Wrapped Tokens: why wrapped tokens are needed

Since the end of spring 2022, the digital asset market has expanded greatly especially crypto day trading signals. Many new projects, promising concepts and already working technologies have appeared. As of May 24, 2022, there are dozens of popular cryptocurrency networks with native coins, as well as thousands of virtual tokens. The list of the latter also includes WBTC. This cryptocurrency belongs to the Wrapped Tokens category.

 

Such virtual assets have begun

What are wrapped tokens: the history of creation
The idea of ​​developing Wrapped-cryptocurrencies belongs to a consortium of 3 institutions:
Kyber network. A digital project with a blockchain of the same name and a native KNC coin.
BitGo Inc. Institutional platform for managing digital assets.
Republic Protocol. Cryptocurrency project with a decentralized OTC trading platform.
The consortium first published the white paper on January 24, 2019. The white paper contains a description of the technology of Wrapped tokens and there is a lot of other information about this type of crypto assets.
The concept of Wrapped was deliberately chosen by the consortium. The technology he developed implies, as it were, “wrapping” a native coin of a third-party blockchain into a digital protocol of another network. Technically, this process is called “tokenization”. At the same time, the creator of the Wrapped-cryptocurrency can choose any standard – for example, ERC-20 (Ethereum virtual chain).

Wrapped coins are virtual assets transferred from one blockchain to another. But this approach requires binding the prices of Wrapped tokens to the rates of native cryptocurrencies. This allows you to avoid discrepancies in market quotes. Binding is done by securing wrapped cryptocoins like stablecoins.

Tokenized assets are backed by custodians. They store the selected material values ​​in the form of the amount of wrapped crypto tokens. For example, for each WBTC, there is always 1 BTC from the collateral fund created by the developer company.

A custodian can be:

  • Merchant (the company providing the Wrapped token).
  • Smart contract.
  • Crypto wallet with multi-signature.
  • Decentralized Autonomous Organization (DAO, or DAO).
  • Why wrapped tokens are needed

By May 24, 2022, the decentralized finance (DeFi) market has become very popular. The development of this cryptocurrency sector was greatly helped by the so-called “blockchain bridges” – software solutions for interconnection. They allow the transfer of tokens and information from one isolated digital chain to another.

But as of May 24, 2022, not all blockchains are bridged. Wrapped tokens solve this problem and increase the number of uses for cryptocoins.

 

Most Popular Wrapped Token

It is WBTC. This wrapped crypto token is the first of its kind. It was released into free circulation by the consortium at the end of January 2019. The launch took place in the Ethereum cryptocurrency network on the ERC-20 protocol. Then the participants of the Bitcoin chain got the opportunity to freely use part of the dApps from Ethereum using WBTC.

As of May 24, 2022, WBTC is accepted by the following platforms:

  • airswap.
  • DeversiFi.
  • HitBTC.
  • Kyber.
  • Uniswap.
  • Maker.
  • dYdX.
  • AAVE.
  • CoinList.
  • Curve and many more.

As of May 24, 2022, WBTC has a capitalization of $7.96 billion. The circulating supply of the crypto asset is 274.5 thousand WBTC. The token is backed by the same amount of BTC.

 

WBTC Price Dynamics

Annual chart of WBTC quotes
Wrapped cryptocurrencies on the Ethereum network
The main Wrapped token on the Ethereum blockchain is WETH, or Wrapped Ether. This cryptocurrency is the first wrapped ethereum. As of May 27, 2022, the exact date of creation remains unknown. WETH is released to the market by Radar Relay Inc.

After its creation, ETH became the prototype for Ethereum tokens. This means that the Ethereum coin was issued before the ERC-20 cryptocurrency protocol. For this reason, ETH does not meet the standard of its own blockchain.

As of May 27, 2022, some decentralized applications on the Ethereum virtual chain only support ERC-20 protocol crypto tokens. At the same time, dApps need standardization. As a result, regular Ethereum is not suitable for many decentralized applications. WETH solves the problem of Ethereum and standardizes dApps.

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