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Wrapped Token

A tokenized version of another cryptocurrency that exists on a different blockchain.

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Overview

Wrapped tokens enable cross-chain interoperability. They allow an asset from one blockchain (e.g., Bitcoin) to be used on another blockchain (e.g., Ethereum) by creating a 1:1 representation of that asset.

How it Works

  1. Locking: The original asset is sent to a custodian or smart contract on its native chain.
  2. Minting: An equivalent amount of the 'wrapped' version is minted on the target chain.
  3. Unwrapping: To get the original asset back, the wrapped tokens are burned, and the original assets are unlocked.

Example

Wrapped Bitcoin (WBTC) allows Bitcoin holders to participate in Ethereum's DeFi ecosystem.

Related Terms

Token