The next step for DeFi on Tezos: Wrapped ERC20 tokens

The next step for DeFi on Tezos: Wrapped ERC20 tokens

By Allen Walters | Publish0x posts | 4 Dec 2020

BenderLabs announced "Wrap Protocol" to be launched in early 2021, which will enable you to wrap your ERC20 tokens into FA2 tokens. FA2 tokens are a token standard on the Tezos blockchain. Wrapped ERC20 tokens can be on the Tezos blockchain.

DEXter, a decentralized exchange that is built on Tezos, will quite likely list several Wrapped tokens on their DEX and add liquidity pools to enable tradingpairs. People will then be able to provide liquidity by adding wrapped ERC20 tokens and a tradingpair like BTCtz, XTZ or USDtz in liquidity pools and enable people to start trading while you receive a percentage of the trading fees.

Atomex, which is a different type of DEX on Tezos, will also support wrapped ERC20 tokens. Atomex is a hybrid DEX based on atomic swap technology, and multicurrency HD wallet. This means that trades are done through an algorithmic market maker, without the use of liquidity pools. The execution of the transaction is fully decentralized through Atomic swap. Atomex already implemented atomic swaps for FA2 token standart. "So as soon as something interesting appears on the mainnet, we can easily add it."

Why ERC20 tokens on Tezos?
It opens up more diverse possibilities for DeFi on Tezos. One could imagine you could now use your long term ERC20 holdings as collateral for loans once DeFi matures on Tezos. I know I have some holdings that I would gladly put up as collateral so I can buy XTZ which would give me stakingrewards on value that is currently stagnant. It would be a great way to use that value and earn extra interest that way.
Another important factor is trading fees. Because Tezos transaction fees are so much cheaper than transaction fees on other smartcontract platforms, it would be quite a bit more economical to start trading on Tezos-based DEXes. Currently Tezos is 3,000 times cheaper than Ethereum. 
Not to mention the fact that Ethereum is often clogged up and Tezos is unlikely to encounter any sort of issues in that perspective. Tezos has about 8 times more capacity if we compare current amounts of max transactions per second. (Tezos 120 tps vs Ethereum 15 tps.)

Wrap utility token
If you use the Wrap Protocol you will earn $WRAP tokens. These are governance tokens for the Wrap Protocol ecosystem. "There will be no premine, no founders and team allocation. The entirety of the $WRAP tokens generated will go to the community of users of Wrap." $WRAP tokens would be the first DeFi utility token to go live on Tezos. 

Although Stable Tech, the company behind the Tezos stablecoin USDtz, also announced a governance token which will be called "Trustee network tokens" (TRU). So either WRAP or TRU will be the first DeFi utility token in Tezos. TRU token will be more than a governance token. Anyone who owns TRU token, will receive tokens from all future DeFi applications that will be launched by Stable Tech. Whenever a new DeFi application is launched, TRU tokenholders will receive "a 1-1 proportional amount of each governance token's genesis supply" of that DeFi platform.


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Allen Walters
Allen Walters

Fascinated by blockchain and future proofing cryptocurrency. Discover the tech before it gets relevant. Twitter: @IgnoranceIt

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