If you are wondering what is WETH, short for Wrapped Ethereum, this is the place to be.
Cryptocurrencies have gained a lot of popularity in recent years, with many investors looking to invest in the digital assets. However, the use of these cryptocurrencies on decentralized applications (dApps) can be limited due to compatibility issues. This is where wrapped tokens come in. Wrapped tokens are tokenized versions of cryptocurrencies that can be pegged to the value of the original coin and used on different blockchain networks. In this article, we will explain what WETH is and how it works.
What is WETH or Wrapped Ethereum?
WETH is the abbreviation for Wrapped Ether, which is a tokenized version of the cryptocurrency Ether (ETH) that is pegged to its value. This means that the value of WETH remains the same as ETH, but it allows for increased interoperability between Ethereum and other blockchain networks.
How Does Wrapped Ethereum Work?
In order to create Wrapped Ethereum, a custodian must hold the collateral (in this case, ETH). This custodian can be a merchant, multi-signature wallet, or a smart contract. To create WETH, an investor sends their ETH to the custodian, and in return, a wrapped version of the ETH is created. This process is similar to how stablecoins are created, as they are essentially "wrapped USD" that can be redeemed for fiat dollars at any time.
What Makes Wrapped Ethereum Unique?
Wrapped tokens like WETH allow investors to hold onto their ETH while using it on other blockchain networks. This increases liquidity and capital efficiency, as investors can wrap their assets and deploy them on other chains. Wrapping Ether can also reduce transaction times and fees, as Ethereum often suffers from high gas fees. However, using wrapped tokens also means relying on a custodian and taking on additional risks.
Are ETH and WETH Different?
Yes, ETH and WETH are different. ETH is the original cryptocurrency, while WETH is a wrapped version of ETH that is ERC-20 compatible. This means that it can be easily used on a wide range of decentralized applications (dApps), but it is equivalent to ETH in terms of value. Investors may need to convert their ETH to WETH in order to use certain dApps.