What is Wrapped Ether and What are its Use Cases?
If you have used DeFi applications or have traded different Ethereum-based tokens on decentralized exchanges or platforms, you must have come across wETH. wETH is the wrapped version of Ether or can also be referred to as the ERC-20 token of Ethereum Coin (ETH) whose value is pegged to ETH itself in a 1:1 ratio. This wrapped version of Ether is exactly the same as the original Ethereum coin except for its use case.
Why is there a need of wrapping ETH?
The Ethereum network is the most popular and used network in the crypto space. Not only decentralized applications are developed on it but plenty of tokens that are now in top trending cryptocurrencies are also based on the Ethereum blockchain. There is a technical standard called the ERC-20 standard that must be followed by every token created on the network. Therefore, most of the DeFi platforms, crypto wallets, and exchanges support only ERC-20 standard tokens. However, there is one major problem, Ether or ETH itself doesn’t follow the ERC-20 standard and cannot be traded on these platforms with other tokens that are based on ERC-20 technical standards. The reason behind this incompatibility is that ETH was created and launched way before this standard was developed and implemented.
Therefore, to fill this gap and make ETH compatible with the ERC-20 standard, a wrapped version of ETH was launched. This wETH can be traded on almost every DeFi platform and exchange and can be easily converted to any other ERC-20 token.
wETH is completely reliable and safe to use as its value is pegged to ETH in an equal ratio. You can imagine wrapped versions of coins as stablecoins. Just like stablecoins are pegged to USD and are the tradeable version of the US dollar, they can be considered as wrapped versions of USD too and the similar is true for the wrapped version of ETH which can also be converted back to its original underlying asset i.e. ETH at any time. Not only Ethereum, but other popular crypto coins also have their wrapped versions including Bitcoin, Avalanche, etc. that make the coin compatible and tradeable on other blockchains.
Working on a wETH token:
Although wETH is the same in value as the Ethereum Coin (ETH) but it cannot be used to pay the gas fee of the transactions conducted on the Ethereum blockchain. wETH can be treated as an Ethereum token and can be used widely across DeFi applications, protocols, and platforms to take part in liquidity pools, staking, and other decentralized financial services where ETH cannot be used. A normal ETH coin can be easily converted into wrapped ETH by sending it to a smart contract that converts and provides an equal number of wETH tokens. It can be unwrapped and converted back to ETH coin in a similar manner. The smart contract automatically generates wETH based on the ETH deposited and when it is converted back, it burns the wETH to control its circulation and maintain an equal value of ETH and wETH in the market. Wrapped Ethereum provides more interoperability and can be employed in liquidity pools, lending, and borrowing platforms.
However, this can be termed as a workaround as ETH itself lacks the ERC-20 standard and who knows this wrapping thing can be scrapped in the future as the Ethereum network is going through constant updates and maybe the code of ETH is updated to make it compatible for the use case that is now being fulfilled by its wrapped version.
As mentioned earlier that you need to send ETH to a smart contract to generate wETH but there are plenty of other methods as well. You can also buy wETH using other ERC-20 tokens on any of the cryptocurrency exchanges and platforms like OpenSea and crypto wallets also offer the wrapping or conversion of ETH into wETH. The simplest method is to use your MetaMask wallet to swap any token or ETH to wETH. Open your MetaMask wallet after entering your private key and make sure to select Ethereum Mainnet before proceeding to swap. On the homepage that shows your balance, click on the Swap icon. Add ETH or any other cryptocurrency that you have in your wallet and add its amount. Then in the below tab, select wETH. A window will appear showing the details of the transaction, click on the blue icon at the bottom of the page showing “Swap”. Your ETH or any other tokens will be easily converted into wrapped Ethereum tokens and you can utilize it in liquidity pools and many other DeFi applications.
