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WETH

Wrapped Ether, commonly known as WETH, is an ERC-20 token that mirrors Ether (ETH) on the Ethereum blockchain. It was developed to address the incompatibility issues between ETH and ERC-20 tokens, thereby enabling ETH holders to tap into the expansive ecosystem of decentralized applications (dApps), platforms, and protocols that utilize ERC-20 tokens.

For instance, if an individual wishes to trade ETH for another token on a decentralized exchange (DEX) like Uniswap, they oftentimes must first convert their ETH to WETH. Similarly, to use ETH as collateral on a lending platform like Aave or Compound, it must be wrapped into WETH.

It's important to note that WETH is not a separate coin from ETH, but rather a representation of it. The value of WETH is always equivalent to the value of ETH, as they are pegged at a 1:1 ratio. The process of wrapping and unwrapping ETH is straightforward and transparent, involving the sending of ETH to a smart contract that mints or burns WETH accordingly.

WETH operates through a smart contract that acts as a custodian, holding ETH and minting or burning WETH in response to user requests. The smart contract ensures that there is always sufficient ETH backing the WETH supply and that the exchange rate between them remains 1:1.

To wrap ETH into WETH, users send their ETH to the WETH smart contract address. The smart contract then mints an equivalent amount of WETH and sends it back to the user's address. To unwrap WETH into ETH, users send their WETH back to the smart contract address. The smart contract then burns the WETH and sends an equivalent amount of ETH back to the user.

WETH is part of a broader family of wrapped tokens that represent different cryptocurrencies on various blockchains. For example, Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin on Ethereum. These wrapped tokens aim to enhance the interoperability and liquidity of different blockchains and tokens.

However, WETH does introduce a custodial risk, as it relies on a smart contract to hold ETH and mint or burn WETH. If the smart contract is compromised, it could result in the loss or theft of users' funds. Additionally, WETH adds an extra step and complexity for ETH holders, as it requires users to wrap and unwrap their ETH whenever they want to use it in ERC-20 compatible platforms or applications. This could create a potential discrepancy between the supply and demand of ETH and WETH, which could affect users' profits or losses.

Ethereum Token Standards

The proliferation of open standards on Ethereum cannot be understated. Open standards are the basis of the Internet and are proven to drive open-source success. Token standards from ERC-20 to ERC-1155 are built to facilitate a standardized interface for smart contracts to interact and exchange value. Standards add convenience and interoperability for developers and dApps, respectively. The two most well-known are ERC-20 and ERC-721. ERC-20 refers to a standard for fungible tokens while ERC-721 specifies a standard for NFTs. The ERC-20 standardization made running an Initial Coin Offering (ICO) on Ethereum incredibly easy, which led to billions of dollars raised in 2017 and 2018 that helped to build out the ecosystem.

Ethereum has also proven a very popular home for NFTs (ERC-721), not least because of its position as the world’s leading smart contract platform. NFTs aren’t presumed to be exchangeable for one another, arbitrarily, as Bitcoin or Ether are (in theory); rather, NFTs represent anything unique in the world as an asset on the Ethereum blockchain. While initially primarily popular among digital artists and content creators, NFTs can represent provable ownership of anything, with an immutable public record of current and previous ownership. In addition to representing ownership of physical or digital assets, NFTs are also being used to prove membership or gain exclusive access to events and groups. 

For most of Ethereum's history, ERC-20 tokens have been the most active token type. However, this started to change during the rise of NFTs in 2021 when ‘non-fungible’ went mainstream. But only recently has the data started to show a flip of ERC-721 and ERC-20 tokens in some areas.

Both ERC-20 and ERC-721 tokens play a critical role in the adoption and success of Ethereum. While distinct, both types also often complement each other with ERC-20s being used as payment for NFTs and in Uniswap V3 where ERC-721 tokens represent unique liquidity positions. 

The future implications of open standards further developing on the platform are difficult to project but have promising potential. Other resources for learning or discussing the more technical components of EIPs and all things Ethereum include eth.research, EthHub.io, ethereum-magicians.org, and Ethereum Gitter.