// GLOSSARY -- BLOCKCHAIN & CRYPTO FUNDAMENTALS

What is Wrapped Token?

1 min read Updated

A wrapped token is a cryptocurrency token pegged 1:1 to another asset, enabling that asset to be used on a different blockchain or protocol — such as WBTC (Bitcoin on Ethereum) or WETH (ETH in ERC-20 format).

WHY IT MATTERS

Wrapping solves interoperability. Bitcoin can't natively interact with Ethereum smart contracts. Wrapped Bitcoin (WBTC) locks real BTC in custody and mints an equivalent ERC-20 token on Ethereum — enabling Bitcoin to participate in DeFi.

WETH (Wrapped ETH) solves a different problem: ETH predates the ERC-20 standard and doesn't natively implement the interface. WETH wraps ETH into an ERC-20 token for protocol compatibility.

The trust model varies: WBTC requires trusting a custodian (BitGo). WETH is trustless (the wrapper contract is simple and audited). Newer solutions like tBTC use decentralized custody.

FREQUENTLY ASKED QUESTIONS

Is WBTC safe?
WBTC relies on BitGo as custodian — you trust them to hold the backing BTC. It's been reliable but introduces centralization risk. Alternatives like tBTC offer more decentralized options.
Why do I need WETH?
Many DeFi protocols use the ERC-20 interface. Native ETH doesn't implement it. WETH wraps ETH into ERC-20 format so it can be used in protocols that expect ERC-20 tokens.
Can any asset be wrapped?
In principle, yes. Any asset with a custodian or locking mechanism can have a wrapped version. The key question is who holds the backing asset and how trustworthy that arrangement is.

FURTHER READING

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