Wrapped Val has arrived! Here’s why this is great news…
Wrapped Val is now on the Binance Smartchain!
The Validity team are pleased to announce the introduction of Wrapped Val (wVAL). For many of you this will be welcome news but for those who aren’t familiar with wrapped tokens, here is a quick guide.
Different blockchains offer different functionality, so it can be frustrating when coins that exist on one blockchain can’t be easily transferred to another. The way to circumvent this issue is to use wrapped tokens.
What is a wrapped token?
A wrapped token is a tokenised version of a cryptocurrency, where the value of the native coin is retained. This is similar to the way stable coins derive their value from another asset like fiat, for example USDT and the US Dollar. In the same way, wVAL retains the same value as ordinary VAL.
How do they work?
Whilst it’s not necessary to understand the wrapping process, for those who are curious here is a simple overview of how it works.
The User sends VAL to a custodian who will mint wVAL on the non-native blockchain (to the equivalent value of the original VAL which is held on-chain in reserve). This wrapped token can then be used on the different blockchain.
When the wVAL needs to be exchanged back to VAL the User puts in a request to the custodian, the tokenised version is destroyed, and the VAL is released from the reserve.
The custodian can be a smart contract, multi-sig wallet, or a DAO, and having a custodian guarantees that the wrapped token maintains the same value as the original coin through the minting and “burning” process. In the case of VAL a multi-sig wallet is utilised with 3 keys to ensure the highest levels of security.
As always, security and transparency are one of Validity’s top priorities. We are working with reputable auditing firm Certik who are currently auditing our code to ensure there are no bugs with the smart contract.
DeFi and Wrapped Tokens
In order to be globally adopted, DeFi needs cross-chain liquidity, and wrapped tokens offer the solution to this problem. Since the wrapped token’s utility is no longer limited to what is offered on its own blockchain, this in turn can increase demand for the coin, and overall capital efficiency which only benefits industry growth.
Benefits of Wrapped Tokens
- Interoperability — the main advantages of wrapped tokens is the ability to use coins across different blockchains that wouldn’t be possible with coins in their native state which are usually incompatible
- Transaction fees — fees for transactions of wrapped tokens can often be lower than transactions with the original coins
- Transaction speed — transactions with wrapped tokens can also often be faster
- Liquidity — an asset’s liquidity can be increased given the ease of transactions with wrapped tokens
Limitations of Wrapped Tokens
- Wrapping cost — there are costs associated with the minting and wrapping process, therefore you should decide whether this will outweigh the benefits for what you want to do with your wrapped tokens
- Decentralisation — relying on a custodian as a centralised third party in some ways contradicts one of the main motivators for adopting crypto
Advantages for Validity
Now that wVAL (BEP20) is implemented on the Binance smartchain, what does that mean for Validity?
- Smart contract capabilities outside of our own L2
- Plug in to the Binance economy
- Potential for onboarding new users
- Provides access to wVal on Metamask
- Listing on Dexes such as Pancakeswap
- Potential for DeFi
