Hello Publish0x community and welcome back in this new article of my “Easy & Short Cryptocurrencies Made Accessible” area.
With this article we are going to introduce the 48th cryptocurrency of this section with the 102nd “E&S” article.
We are almost at 50 crypto analyzed in our “Easy & Short”!
Today we start to see another crypto. As probably have you already read from the title, we will talk about Wrapped Ethereum (WETH)!
In the last review, I talked about Wrapped Bitcoin (WBTC), If you missed my last review, you can recover it here: https://www.publish0x.com/easyshort-cryptocurrencies-made-accessible/e-and-s-wbtc-do-more-with-your-bitcoin-xrgxjlp
What is WETH?
WETH is the Wrapped Ethereum version. Wrapped tokens, such as WETH or Wrapped Bitcoin, are tokenized versions of cryptocurrencies that are pegged to the value of the original coin. Almost every major blockchain has a wrapped version of its native cryptocurrency such as Wrapped BNB , Wrapped AVAX or Wrapped Fantom .
The mechanism of such coins is like that of stablecoins. Stablecoins are essentially "wrapped USD" meaning that stablecoins pegged to the dollar can be converted to FIAT dollars at any time. Similarly, WBTC, WETH, and all other wrapped coins can be redeemed for the original resource at any time. Wrapped coins solve a particular problem: because of the low interoperability of blockchains, native coins on one chain cannot be used on another chain.
For example, you cannot use Bitcoin on the Ethereum blockchain and you cannot use Ether on Bitcoin or Avalanche. Coin wrapping solves this problem by tokenizing them and applying the blockchain token standard to the tokenized version of the original cryptocurrency.
On Ethereum, almost all fungible tokens follow the ERC-20 standard developed in 2015. This token standard was developed to have a standardized set of rules for tokens on Ethereum, which simplified the launch of new tokens and made all tokens on the blockchain comparable to each other.
The mandatory rules that all ERC-20 tokens must follow are total supply, balance, transfer, transfer from, approval, and allowance. Unfortunately, Ether itself does not comply with the ERC-20 standard. Wrapped Ethereum was developed to increase 'interoperability between blockchains and make Ether usable in decentralized applications (dApps).
How does Wrapped Ethereum work?
Wrapped tokens require custodians to hold the collateral. For example, if you want to wrap Ethereum, a custodian will hold your Ether and give you Wrapped Ethereum in return.
Custodians can be merchants, multi-signature wallets, or simply a smart contract. You send your collateral to the custodian and a wrapped version of your coin is minted. For example, with Wrapped Ethereum, you could simply go to a DEX like UniSwap and exchange your Ether for Wrapped Ethereum. The original Ether is converted to Wrapped Ethereum, but the value remains the same, like how stablecoins pegged to the dollar work.
On the Ethereum blockchain, Wrapped Ethereum is required to exchange tokens on decentralized applications. For example, some decentralized applications cannot work with Ether as collateral but only with WETH. While Ether is needed to pay for gas, WETH is an ERC20 token that can be exchanged with other ERC-20 tokens on DeFi applications. Other blockchains may have their own version of WETH, thus creating a mirror image of Ether on their blockchain.
Next week we'll see new details about Wrapped Ethereum!
I invite you to follow me so you don't miss the second part of the article that will be released next Sunday.
Do you use WETH into DApps?