Wrapped tokens such as WBTC help move assets across blockchains. This article will discuss, "What Do Wrapped Coins Mean? What is the Difference Between Pegged Token and Wrapped Token?" Let's get started.
What Do Wrapped Coins Mean?
They are tokens that can function on different blockchain networks but are pegged to a specific cryptocurrency. WBTC, or wrapped bitcoin, for instance, can work on the Ethereum network but derives its value from bitcoin prices.
Wrapped tokens can be thought of as siblings of stablecoins. Let's explore their differences.
What is the Difference Between Pegged Token and Wrapped Token?
Any cryptocurrency coin that is tethered to and supported by a tangible asset (fiat money, gold, or other precious materials) or other cryptocurrencies at a 1:1 price ratio is known as a pegged token. When you stop to think about it, that pretty much sums up how wrapped tokens operate, so you could argue they both belong to the same class.
Although it is crucial to stress that wrapped tokens and stablecoins are two different types of assets. A wrapped token is tied to another cryptocurrency that is stored in a virtual vault, as opposed to stablecoins, which are digital assets whose value is fixed to the value of fiat currencies.
Additionally, stablecoins are not as securely backed as the more recent wrapped cryptos. For instance, Tether (USDT) only roughly backs one actual USD. Cash, bonds, treasuries, and other assets and financial instruments make up the USDT reserves. One wrapped token, however, is exactly worth its original value.
What Do Wrapped Coins Mean? What is the Difference Between Pegged Token and Wrapped Token? - Hopefully, this article can help you to get some knowledge.
