Comment
Author: Admin | 2025-04-27
Crypto enthusiasts might have heard of wrapped Bitcoin or wrapped crypto tokens. In this article, we explore the types of wrapped tokens there are in crypto, the point of wrapped tokens, and what they mean to you as a crypto trader and investor.Blockchains like Bitcoin and Ethereum have different protocols, functionalities, and due to the fundamental difference in their algorithms, they cannot talk to each other. While this independence preserves individual blockchains’ sovereignty and security, it also challenges the existence of an interoperable ecosystem where data and information should be exchanged easily.For instance, in decentralized finance (DeFi), where an efficient, smooth, and fast movement of funds is crucial, wrapped crypto tokens find a valid application.Some more recent blockchains, like Polkadot, were created to overcome the interoperability issue. However, it became necessary to find a solution and allow communication between early networks like Bitcoin and Ethereum, which is why wrapped tokens were created.Wrapped crypto tokensWrapped crypto tokens are cryptocurrencies pegged to the value of another original crypto or assets like gold, stocks, shares, and real estate and put to work on the DeFi platforms.The original asset is ‘wrapped’ into a digital vault, and a newly minted token is created to transact on other platforms. Wrapped tokens allow non-native assets to be used on any blockchain, build bridges between networks and implement interoperability in the cryptocurrency space. They can represent anything from arts and collectibles, commodities, crypto assets, equity and stocks to fiat currencies and real estate. Since wrapped tokens are pegged to another asset, they necessarily need to be regarded and managed by a custodian entity that will wrap and unwrap the asset. We will see why this is also a limitation in the decentralized world of cryptocurrencies.Wrapped Bitcoin denominated as wBTC were the first wrapped Bitcoin tokens used in the
Add Comment