Beginners Guide to Wrapped Tokens

pNetwork Team
Oct 13 · 5 min read
pNetwork — Beginners Guide to Wrapped Tokens

There are two significant obstacles to entering the DeFi ecosystem right now.

The first one is to have an ERC-20 token, where you’ll need to swap the crypto you have for a different ERC-20 token in a fiat currency exchange, therefore changing the asset allocation in your portfolio and connected risk profile. A solution to this is the pTokens dApp that lets you swap your crypto token for their corresponding representation on blockchains like Ethereum, Binance Smart Chain or Arbitrum, so-called wrapped tokens.

The second one is to pay the high transactional fees on the Ethereum blockchain to participate in the DeFi market — while the chain is undergoing infrastructural changes, a variety of Layer 2 scalability solutions are going live and attracting a share of the DeFi market, therefore making wrapped tokens even more valuable.

So, let’s talk about the solution.

What Are Wrapped Tokens?

A wrapped token is a token whose value is tied to that of an underlying cryptocurrency. As the wrapped version is issued on a host blockchain, the original asset is locked in a secure digital sandbox.

For example, pBTC is a wrapped token of BTC when pNetwork transforms it, thus giving users the capacity to enter the DeFi ecosystem effectively still holding BTC. In case you have another crypto, there are other 44 cryptocurrencies you can wrap into pTokens now.

How Do pNetwork’s Wrapped Tokens Work?

Suppose we continue using pNetwork’s wrapped bitcoin (pBTC) on Ethereum as our example. In that case, pBTC is an ERC-20 token with a 1:1 peg to bitcoin’s value, effectively allowing anyone to use BTC on the Ethereum network.

Wrapped crypto tokens usually involve a system that retains an equal amount of the asset as the wrapped amount. In this case, pNetwork secures a 1:1 peg, therefore, needing to hold 1 BTC for each one pBTC that is minted.

This is what the wrapping process looks like:

  1. Anyone can deposit BTC into a dedicated bitcoin deposit address for pNetwork to mint a correspondent amount of pBTC on Ethereum (or another supported network).
  2. Once the deposit is confirmed, the pNetwork system mints pBTC on the Ethereum network in accordance with the amount of BTC deposited.
Source: https://dapp.ptokens.io/swap?asset=btc&from=btc&to=eth

Additionally, as part of the unwrapping process, anyone holding pBTC can change them back to BTC by using the pTokens dApp. As a redeem request is detected, the pNetwork system burns the relevant pBTC amount and releases the BTC from the reserves.

Why Do We Need Wrapped Tokens?

You must have already had the idea of using the wrapped version of your bitcoin on the Ethereum network before reading this post, but you couldn’t do it, right? Since these two blockchains were developed at different times and with differing characteristics, this is technically impossible without the support of bridges like the ones pNetwork creates.

The Bitcoin blockchain is entirely unaware of what is happening with the Ethereum blockchain. This makes cross-chain use impossible without a connector like pNetwork. Nevertheless, if you own wrapped tokens like pTokens, you will create further connections between different blockchains and benefit from their functions.

In this case, the most relevant reason to use pTokens is to enter the DeFi ecosystem quickly and easily so you can use them in yield farming, lending, staking, and other platforms.

Even though most DeFi projects are located on the Ethereum blockchain, these are rapidly expanding to multiple network solutions. pNetwork’s efforts to generate pTokens are directed to as many as 11 different blockchains (as of October 2021).

Three Advantages of Using pTokens

There are three benefits from using wrapped tokens like pTokens:

  1. Use non-native tokens on any other blockchain: Even if specific blockchains have their token specifications (for example, Ethereum’s ERC-20 or BSC’s BEP-20), such requirements cannot be used by different blockchains. pTokens allow the use of non-native tokens on a variety of other blockchains supporting smart contracts.
  2. Increase liquidity from isolated blockchains: Wrapped tokens can boost liquidity and resource usage on decentralized exchanges. The option to wrap unused assets from specific blockchains and use them on another one will help to link previously isolated blockchain’s liquidity.
  3. Better transaction times and fees: While Bitcoin has some excellent features, it’s at times slow and costly to use. However, the pNetwork’s wrapped version (pBTC) has quicker transactional times and lower fees when used on Layer 2 networks such as Polygon or Arbitrum.

Another wrapped token pegged to BTC’s value with the most bitcoins locked in is WBTC.

What Is WBTC?

WBTC (wrapped bitcoin) is an ERC-20 token with a 1:1 peg with bitcoin that was the first wrapped token created and works with several merchants who mint and burn WBTC tokens. BitGo is the custodian who holds BTC’s keys to mint WBTC tokens.

While being widely supported in the DeFi ecosystem, acquiring WBTC directly involves a long and manual process. One way to go from BTC to WBTC in a timely manner is via pNetwork’s pBTC.

How to Get WBTC via pBTC?

A fast way to go from BTC to WBTC is via pNetwork’s pBTC.

The first step is to deposit your Bitcoin in order to get a 1:1 pegged tokenized representation of it on the host blockchain you are looking to use. pNetwork supports Bitcoin bridges for a variety of networks including Ethereum and Ethereum Layer 2 such as Polygon or Arbitrum as well as EOS.

You can easily accomplish this using the pTokens dApp. Once you obtain pBTC, there are several ways to get WBTC by directly swapping pBTC for it on:

  1. Curve Finance
  2. Uniswap
  3. Krystal
  4. Bancor Network
Source: https://curve.fi/pbtc,10/13/2021

If you hold bitcoin or any other cryptocurrency built in a different blockchain than Ethereum (or its scaling solutions) that pNetwork supports, get yourself some wrapped bitcoin alternatives via pTokens and enter the DeFi ecosystem today!

___

To get involved and stay up to date:

💬 join our community on Twitter and Telegram
🦜get started with the pTokens dApp
🗳participate in pNetwork governance
🔐register as a pNetwork node operator

pNetwork

Enabling cross-chain DeFi composability