WBTC Is Wrapped Token, Here's Understanding, How It Works, And Examples

Getting to know Wrapped Token. (Photo; Doc. Binance)

JAKARTA - The complex crypto world has a variety of terms that ordinary people rarely understand, one of which is Wrapped Token. Wrapped Token allows digital assets like Bitcoin to be used on other blockchains. Wrapped Token is a token whose base value is tied to other digital assets for cross-chain functionality. The wrapping process' involves genuine crypto security in a digital default, and uses a Wrapped Token version on other crypto networks.

Wrapped Tokens allow digital assets like Bitcoin to be used on blockchains other than the network where they operate natively. For example, Wrapped Bitcoin (WBTC) is a token compatible with ERC-20 that can be used on the Ethereum network. Similarly, crypto assets can be wrapped to comply with BEP-20 standards in order to be used on the BNB Smart Chain.

Wrapped Tokens usually require a customer to print tokens. The wrapping process starts with merchants such as CoinList, Airswap, and AAVE, who send requests to customers to print Wrapped versions of original tokens on different blockchains.

For example, WBTC, custodians need to hold 1 BTC for every 1 WBTC printed. The proof of this reserve is recorded on the blockchain. Wrapped tokens are converted back into genuine assets when merchants submit requests to custodians to burn the token Wrapped'' and release the original asset from the reserve.

Wrapped Bitcoin (wBTC) is one of the most popular Wrapped Tokens. Launched in 2019 by BitGo, Kyber, and Ren, wBTC allows Bitcoin holders to use their BTC in the Ethereum DeFi ecosystem. This provides opportunities for Bitcoin holders to take advantage of their liquidity in various DeFi protocols.

The second example is wETH or Wrapped ETH. Although Ethereum is the basis of many DeFi protocols, Ethereum native tokens (ETH) do not match the ERC-20 standards developed afterwards. Therefore, ETH needs to be wrapped up so that it can be used in applications built using ERC-20 standards.

Wrapped Token is a step forward in the crypto industry, with the potential to increase interoperability and open up new investment opportunities. As blockchain technology develops, Wrapped Token will continue to play an important role in the evolution of the crypto ecosystem.