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What is a “Wrapped” Crypto Token?
What is a “Wrapped” Crypto Token?

Learn about wrapped tokens, and how to buy/swap them in Best Wallet.

Updated over a week ago

Wrapped tokens are cryptocurrencies pegged to the value of another cryptocurrency and operate on a different blockchain than the original asset.

The leading example of this is Wrapped Bitcoin ($WBTC), which is an Ethereum-based token that reflects 1:1 the price of actual Bitcoin ($BTC). The value of Bitcoin is "wrapped" up in an Ethereum smart contract, meaning you can trade Wrapped Bitcoin for other Ethereum tokens, something you can't do easily with traditional Bitcoin. It also means that when the price of Bitcoin ($BTC) goes up, so does the price of Wrapped Bitcoin ($WBTC).

Another common example of a wrapped token is Wrapped Ether ($WETH), which allows users to hold and trade Ethereum ($ETH) but on a different network than Ethereum.

How do wrapped tokens work?

The underlying asset, such as Bitcoin, Ethereum, or another cryptocurrency, is locked up in a smart contract on its native blockchain. An equivalent amount of tokens is minted on a different blockchain, representing the wrapped version of the original asset.

Wrapped tokens can be freely traded, transferred, or used within the crypto network they exist on. This means you can buy, send, and trade Wrapped Bitcoin in the same way you could with the original Bitcoin ($BTC), but on a different crypto network. Wrapped tokens retain the value and properties of the underlying asset, allowing users to interact with them as if they were the original asset.

The need for wrapped tokens

Different crypto networks will have different operating protocols, with different token standards and network capabilities. For example, the Ethereum and Bitcoin networks are two very distinct blockchains made on different protocols, which makes direct interaction challenging.

Wrapped tokens enable assets from one blockchain cryptocurrency to be represented on another blockchain, meaning you can buy, hold, and trade a token like Bitcoin ($BTC) on the Ethereum network.

These wrapped tokens play a vital role in decentralised finance (DeFi) applications by enabling users to access different cryptocurrencies across various crypto networks.

Are wrapped tokens safe?

Yes, wrapped tokens are just as safe as many cryptocurrencies. For example, Wrapped Bitcoin is safe because it exists on the Ethereum network, and therefore has all the security and operabilty of any ERC-20 token.

Like with any cryptocurrency, it's important to research and complete your due diligence before buying. Wrapped tokens are secured by complex smart contracts, so you need to ensure it is reputable and commonly used before investing.

Benefits of wrapped tokens

  • Interoperability: Wrapped tokens allow the purchase and trading of cryptocurrencies from one blockchain to another, facilitating access to a wider range of DeFi services and applications.

  • Enhanced Liquidity: Wrapped tokens improve the market depth and minimise slippage by making cross-chain trading more accessible.

  • Cross-Chain Transfers: They allow for easy asset transfers between different blockchains without the need for centralised intermediaries.

Limitations of Wrapped Tokens

  • Custodian Dependency: They require reliance on a custodian for minting and burning, which introduces a point of centralization.

  • Smart Contract Risks: As they depend on smart contracts, there is a risk of vulnerabilities and bugs that could be exploited.

  • Price Peg Stability: It can be difficult to maintain a stable connection between the wrapped token and its original asset, affecting reliability and trust.

Does Best Wallet support wrapped tokens?

Yes, you can swap, buy, or send wrapped tokens in Best Wallet, including Wrapped Bitcoin ($WBTC).

Can I buy wrapped tokens in Best Wallet?

Yes, you can buy some wrapped tokens directly within the Best Wallet app. You can also buy stablecoins like Tether ($USDT) or Dai ($DAI) and swap them for any wrapped token on the Ethereum, BNB Smart Chain, or Polygon network.

Can I swap wrapped tokens in Best Wallet?

Yes, you can easily swap your wrapped tokens for other tokens on the same network, or vice versa.

Wrapping up

Wrapped tokens offer an easier way to buy and transact certain tokens, such as Bitcoin ($BTC). By being able to hold and swap Wrapped Bitcoin ($WBTC) in Best Wallet, you can benefit from Bitcoin's price increases, whilst also being able to quickly and easily swap it for another Ethereum network token.

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