What is wrapped crypto?

What are wrapped crypto tokens?

Top 5 wrapped tokens by market cap as of July 21, 2022. Source: Coingecko

Why is wrapped token called this way?

Difference between stablecoins and wrapped tokens

What are wrapped Bitcoin tokens?

  • earn fixed income (fixed interest rate) as lenders
  • place their wrapped tokens in a vault to earn APY

How wrapped Bitcoin (WBTC) is created

Minting and burning of WBTC tokens. Adapted from MDPI
  1. A merchant (for example, DeversiFi or Kyber) receives your request and performs KYC and AML checks.
  2. The merchant sends your BTC to the custodian, which locks it away.
  3. The custodian mints ERC-20 or TRC-20 tokens (WBTC) based on the exact amount of your BTC.
  4. The merchant receives the wrapped amount to their Ethereum address and provides them to you.
Minting and burning dynamics for WBTC between June and December 2021. Source: CoinDesk

What is wrapped Ether (WETH)?

Wrapping makes ETH compatible with dApps. Source: Weth.io

How wrapped Ether is created

Wrapped tokens on Binance Smart Chain (BSC)

Benefits of using wrapped tokens

  • Interoperability. Wrapping makes cryptocurrencies recognizable for non-native blockchains. For example, Bitcoin holders can take advantage of different decentralized options.
  • Increasing liquidity and capital efficiency. Connections between otherwise separate pools of liquidity are advantageous for both centralized and decentralized exchanges.
  • Faster and cheaper transactions. By moving their assets from one blockchain to another, holders save time, cut costs, and earn more yield. For example, BTC is not the fastest or cheapest blockchain. Thanks to wrapped Bitcoin, users can access shorter transaction times and lower fees on other blockchains.

Limitations of using wrapped tokens

  • As a custodian must hold the funds underlying your wrapped token, trust can be an issue.
  • Despite the standard compatibility, such assets are still unfit for genuine cross-chain transactions — that is, transactions without an intermediary (custodian).
  • Minting on blockchains with substantial gas fees can be costly, and slippage may occur.

Rise of bridge hubs

To sum up

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CoinLoan is a Crypto Lending Platform

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CoinLoan

CoinLoan

CoinLoan is a Crypto Lending Platform