What is WETH "Wrapped Ethereum" and How To Get it.

 What is WETH "Wrapped Ethereum" and How To Get it.

Wrapped tokens, like WETH or Wrapped Bitcoin, are tokenized versions of cryptocurrencies that are tied to the value of the original coin and can be unwrapped at any time.

What is WETH? 

WETH is a wrapped version of Ether. Wrapped tokens, like WETH or Wrapped Bitcoin, are tokenized versions of cryptocurrencies that are tied to the value of the original coin and can be unwrapped at any time. Almost every major blockchain has a wrapped version of its native cryptocurrency, such as Wrapped BNB, Wrapped AVAX, or Wrapped Fantom. The mechanics of this coin are similar to stablecoins. Stablecoins are essentially "packaged dollars" in that dollar-pegged stablecoins can be exchanged for fiat dollars at any time. In a analogous fashion, WBTC, WETH, and all different wrapped coins can be redeemed for the earliest asset at any moment. Wrap coins solve a particular problem: due to the low interoperability of blockchains, the native coins of one chain cannot be used on another chain. For example, you cannot use Bitcoin on the Ethereum blockchain, nor can you use Ethereum on Bitcoin or Avalanche. Wrapped coins solve this problem by tokenizing them and applying the blockchain’s tokenization standards to a tokenized version of the original cryptocurrency.

On Ethereum, almost all fungible tokens follow the ERC-20 standard established in 2015 . The token standard aims to create a standardized set of rules for tokens on Ethereum, simplifying the issuance of new tokens and making all tokens on the blockchain comparable to each other. The mandatory rules that all ERC-20 tokens must follow are totalSupply, balanceOf, transfer, transferFrom, approval and permit. Unfortunately, ether itself is not ERC-20 compliant. Wrapped Ethereum was developed to improve interoperability between blockchains and make Ether usable for decentralized applications (dApps).

How does WETH work?

Wrapped tokens require a custodian to hold collateral. For example, if you want to package ether, the custodian will hold your ether and give you packaged ether in return.

The custodian can be a merchant, a multi-signature wallet, or just a smart contract. You send your collateral to the custodian and a wrapped version of your coin is minted. For example, with Wrapped Ethereum, you can simply go to a DEX like Uniswap and exchange your Ether for Wrapped Ethereum.

The original ether is converted to Wrapped Ethereum, but the value remains the same, similar to how dollar-pegged stable coins work. On the Ethereum blockchain, Wrapped Ethereum is required to exchange between tokens on a decentralized application. For example, some DApps cannot use Ether as collateral, but only WETH. While Ether is required to pay for gas, WETH is an ERC20 token that can be exchanged for other ERC-20 tokens on DeFi applications. Other blockchains may have their version of WETH, creating a mirror image of ETH on their blockchain. 

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What Makes Wrapped Ethereum Different?

Encapsulated tokens such as WETH, WBTC allow tokens to exist on multiple chains. For example, if an investor wants to hold Ether but use it on the Avalanche chain, they will need Wrapped Ethereum to gain price exposure to ETH instead of using the Ethereum chain. Doing so increases the liquidity and capital efficiency of the blockchain as it allows investors to package assets and deploy them on other chains.

Bitcoin is particularly popular in this regard as it is seen as a "safe haven" asset in the cryptocurrency space. Investors can keep their Bitcoin but use it for yield farming or other DeFi activities by wrapping it. Wrapping coins also reduces transaction time and fees. Ethereum in particular has high gas fees, so wrapping it on another blockchain would allow investors to trade ether at a much lower cost.

On the other hand, wrapping tokens means that investors have to go through a custodian and take additional risk in this way. Decentralized exchanges can have smart contract risks, and custodians like Thorchain can be hacked. So far, there is no ubiquitous fully decentralized solution for wrapping coins. Also, not all chains can wrap every token. While a version of WETH exists on most major blockchains, this is not always the case.

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What is Weth and How To Wrap into ETH