Wrapped tokens are a way of using cryptocurrencies, such as Bitcoin or Dogecoin, on a blockchain other than the blockchain they were originally built on. But what are wrapped coins and how do they function? One of the biggest benefits of packaged tokens is that they create greater interoperability between incompatible cryptocurrencies and blockchains.
What are wrapped coins?
Wrapper tokens are assets that allow the transfer of the value of a native asset from one blockchain to another. One of the most famous wrapped coins is Wrapped Bitcoin (WBTC). WBTC is pegged 1:1 to the price of Bitcoin (BTC), so one WBTC should always be equal to one BTC. Wrapped tokens primarily help facilitate blockchain interoperability. After wrapping the native token, it can be deployed on other blockchains than the platform that created it.
It's worth noting that if you're a regular user, you don't have to worry about the wrapping and unwrapping process; you can trade these wrapped tokens like any other cryptocurrency.
How do they function?
Wrapped tokens are also considered crypto assets and investors can trade them for profit just like other unwrapped tokens. To give you a clearer understanding of how Wrapped Tokens work, here is a brief overview of how one of the most popular tokens, Wrapped Tokens (WBTC ), works.
Wrapped tokens are created and destroyed through a process called "minting" and "burning." To mint, a wrapped token, such as WBTC, the underlying asset, in this case, BTC, is sent to a custodian who stores the BTC in a digital vault. Once the underlying BTC is locked, an equal amount of WBTC can be minted.
In fact, every WBTC that exists has a custodian who helps mint new WBTC in exchange for Bitcoin. So by owning WBTC, you actually own a coin with the same value as BTC, which can be used on other networks.
I hope now you know what are wrapped coins and how do they function. In fact, traders should be able to transfer WBTC to custodians and receive BTC in return at a 1:1 value. Wrapped Tokens Help Build More Bridges Between Different Blockchains
