Wrapped cryptocurrencies allow any crypto coin to become usable on any blockchain apart from the one they were built on originally. These wrapped tokens facilitate interoperability and help increase liquidity and the utility of DeFi and smart contract platforms.
Wrapped ETH is one such popular wrapped crypto.
What is Wrapped Ether?
Wrapped Ether or WETH is the ERC-20 version of Ether. This wrapped token increases the interoperability of Ether by making it usable on ERC-20 compatible blockchains.
WETH’s value operates similarly to stablecoins on a 1:1 ratio. The value of 1 WETH equals 1 Ether. Moreover, you can get the same amount of Ether back by exchanging them for your WETH.
How does Wrapped Ether work?
You can achieve this via a custodian if you want to convert Ether to WETH. That custodian can be a smart contract, a merchant or a multi-signature wallet. The custodian will take your Ether as collateral; in exchange, you will get Wrapped Ether.
You can also go to decentralised exchanges and swap your Ether for WETH.
The need for WETH
The native token of Ethereum, Ether, was created before the ERC-20 standard. Hence, Ether is not ERC-20 compatible and cannot be exchanged directly for tokens on the blockchain. To trade it in a decentralised manner, you would have needed a trusted third party or complex technical implementations.
The developers at Ethereum decided to upgrade Ether to the ERC-20 standard by wrapping it. Thus, one smart contract could conveniently handle both WETH and ERC-20 tokens without leading to unnecessary complexities.
On Ethereum, WETH is used to swap between tokens on decentralised apps. Some decentralised apps can only use WETH as collateral. You can use Ether to pay gas fees and exchange WETH for other ERC-20 tokens on DeFi applications.
Interoperability of WETH
Apart from making the trade between ERC-20 tokens simpler on the Ethereum blockchain, you can use WETH on multiple blockchains.
Let’s take an example for a better understanding. Suppose you have 10 Ether coins that you want to invest elsewhere. You can convert it to WETH and then to Tether. You can use Tether on blockchains like Bitcoin Cash, Bitcoin, TRON, EOS etc. This trade-off will allow you to diversify your investment and even help you easily liquidate your assets when necessary.
Moreover, you can also earn by lending your WETH in a liquidity pool. Some decentralised finance protocols will even give you rewards for participation.
You can also wrap your Ether coins and use them on another blockchain to avoid the high gas fees of Ethereum. This will also save your transaction time.
To summarise, you can use your WETH tokens to make payments, pay gas fees and trade on decentralised exchange platforms. You can do everything that can be done using an ERC-20 token.
How to wrap WETH?
To wrap Ether, you will need an Ethereum-compatible crypto wallet. There are many of them in the market. Some reputable ones are:
- MetaMask
- Ledger Nano X
- Trezor
- Rainbow Wallet
- Guarda
- Argent
- Exodus
You can visit an Ethereum-based decentralised exchange platform to convert your ETH to WETH. For your convenience, let’s take the example of Uniswap. Follow the steps mentioned below:
- Visit https://app.uniswap.org/#/swap?chain=mainnet
- Connect your crypto wallet
- In the Swap option, choose ETH on the top and WETH at the bottom
- Set the amount
- Click on ‘Swap’
Your wallet will receive a pop-up notification showing the total transaction amount and estimated gas fees.
- Press ‘Confirm’
Your swap is now complete. You can also swap ETH for WETH using OpenSea.
How to unwrap WETH?
Let’s take the example of OpenSea to make you understand how to unwrap WETH. The steps are as follows:
- Visit https://opensea.io/
- Log in to your OpenSea account
- On the top-right corner of the screen, click on the wallet icon
- Click on the three dots next to WETH
- Press the ‘Unwrap’ option
- Click on ‘Confirm’ after the server processes your request
The unwrapped Ether tokens will get credited to your wallet.
WETH has benefitted the Ethereum blockchain and its DeFi ecosystem. However, it would help if you remembered that since wrapping ETH requires the involvement of a custodian, there might be an acceptable risk of hacking. Also, all blockchains cannot wrap every token.
