What is Wrapped Token?
Different blockchains cannot directly speak to each other. For example, you cannot use native Bitcoin directly inside Ethereum apps.
A wrapped token solves this by locking 1 Bitcoin in a vault and minting 1 Wrapped Bitcoin (WBTC) on Ethereum.
The wrapped token always equals the exact price of the original coin and can be redeemed 1:1 at any time.
Why It Matters in Web3 & Crypto
Wrapped tokens bring massive liquidity from coins like Bitcoin into fast-growing DeFi ecosystems for lending and trading.
Key Mechanics & Best Practices
- 1Look for the 'W' prefix in token tickers (e.g., WBTC for Wrapped BTC, WETH for Wrapped ETH).
- 2Use wrapped tokens as collateral in DeFi lending protocols to borrow stablecoins.
- 3Unwrap your tokens back to native assets whenever you want to move them back to their original blockchain.
Practical Scenario
Alice holds 1 BTC and wants to earn yield in Ethereum DeFi. She wraps her BTC for 1 WBTC, deposits it into a lending app, and earns interest while keeping her Bitcoin price exposure.
SECURITY & RISK TIP
Check the custodian or smart contract bridge backing the wrapped token to verify that reserve assets are audited in real time.