Wrapped tokens, in case you do not know, are tokenized versions of cryptocurrencies that are pegged to the value of the original coin. This is to facilitate trading on multiple different blockchain platforms. For example, we are unable to trade Bitcoin on the ETHereum blockchain, but we can do so with Wrapped Bitcoin (WBTC). They can be unwrapped at any time. Now, what is WETH meaning?
WETH (Wrapped Ether) is essentially the wrapped version of Ether. The reason for this is native Ether not being able to be used in many Ethereum decentralized applications (dApps). This is because while almost all fungible tokens follow the ERC-20 standard on the Ethereum blockchain, Ether does not comply with the ERC-20 standard. As a result, WETH was created to increase interoperability between blockchains and make Ether usable in dApps. In fact, WETH is very popular in decentralized finance (DeFi). Many wallets such as MetaMask, TrustWallet in the Ethereum network support WETH.
How does Wrapped ETHereum work?
To wrap ETHer, we would have to exchange Ether for WETH. Such a process requires the help of a custodian. Users send the Ether to the custodian and a wrapped version of the coin is minted thereafter. For example, we can go to a decentralized exchange (DEX) like UniSwap to swap Ether for WETH. The WETH is automatically pegged to the value of the native Ether we swapped them for. This means that all WETH created is backed up completely by Ether reserves. However, transaction fees still need to be paid in the form of Ether.
WETH is very useful across the Ethereum blockchain because it is a token in the ERC-20 format. Many dApps on the blockchain only accept ERC-20 tokens. By creating WETH, we do not need to create new smart contracts to accept other tokens of other formats, like Ether.
Simply put, WETH is created to perform many more functions that Ether cannot. After all, WETH meaning is “Wrapped Ether”.
In Conclusion
WETH meaning is “Wrapped Ether”. We hope that you have a greater understanding of WETH and wrapped tokens in general.
Wrapped tokens like WETH and WBTC can live on multiple chains because their formats are changed to suit the operability of the blockchain system. In some ways, blockchains have become more liquid as a result of wrapped tokens. Investors can wrap their assets and deploy them on another chain. Wrapping coins can also greatly reduce the transaction times and fees. This is much more the case for Ethereum, which is notorious for its high gas fees.
Of course, this does not come without any risks. Users are basically entrusting custodians with their coins. Merchant custodians may potentially lose assets accidentally, while smart contracts that are not secure may get hacked. It is advisable that users go to a reliable DEX to wrap their tokens.
