What Are Wrapped Cryptocurrencies?

Wrapped Cryptos and DeFi Interoperability

, or the capacity of different blockchain protocols to interact and exchange value with each other, has long been a priority in the cryptocurrency space. However, the need for interoperability solutions has become more urgent with the rise of Ethereum’s movement, as the community clamors to put non-Ethereum-based assets to work in DeFi protocols.

One emerging solution to such DeFi-related interoperability challenges comes with cryptocurrencies: tokens that are 1:1 representations of other crypto assets, such as . Wrapped cryptocurrencies track the value of the asset they represent and can often be redeemed for that asset. They usually take the form of an or other platform token. Therefore, they can be used within a smart contract platform ecosystem (such as Ethereum), and can be exchanged for other tokens within that ecosystem.

In short, wrapped cryptocurrencies have the effect of allowing crypto assets to be used on non-native blockchains. This means, for example, that bitcoin in its wrapped form can be used to interact with and smart contracts, or as collateral for a loan on — all of which might have been difficult or impossible given the fundamental structural . Tokenizing bitcoin as an ERC-20 token allows the Ethereum ecosystem to benefit more fully from bitcoin’s liquidity.

Wrapped Bitcoin (wBTC) vs. Bitcoin (BTC)

Several of bitcoin exist. , jointly created by Bitgo, , and , was launched in 2019. To obtain wBTC, you must request the tokens from a merchant, such as Kyber, DeversiFi, or Airswap, who will then carry out K and checks to verify your identity. The merchant then initiates a transaction with a , who mints wBTC tokens and sends them to the merchant. Next, you swap your bitcoin for wBTC with the merchant via a , , or . Only merchants can redeem wBTC for BTC.

Crypto exchange launched its own version of , , in 2020. Every HBTC is backed by one BTC. You can obtain HBTC by first depositing BTC into your Huobi Global exchange account and then withdrawing HBTC. You can redeem your BTC by depositing your HBTC into your account and withdrawing BTC. This system contrasts with that of wBTC, which (as mentioned above) is redeemable only by merchants. However, both wBTC and HBTC are fairly centralized systems for wrapping bitcoin.

Ren, launched in 2020, offers a more decentralized alternative to wBTC and HBTC with its renBTC. To obtain renBTC, you must send bitcoin to Ren’s protocol, which will lock it up in a smart contract. The protocol then verifies the details of the transaction and returns a minting signature, which allows you to mint renBTC, an ERC-20 token representing bitcoin. Ren also lets you burn your renBTC to redeem the bitcoin you locked up.

There are a variety of other wrapped bitcoin tokens in addition to those mentioned above, including:

• sBTC

• Tokenlon’s imBTC

• BoringDAO’s oBTC

• pNetwork’s pBTC

At another layer of abstraction, PieDAO’s BTC++, ACoconut’s acBTC, and mStable’s mBTC are all backed by a basket of ERC-20 token representations of bitcoin. In other words, they are backed by multiple wrapped versions of bitcoin. For example, acBTC is backed by sBTC, wBTC, pBTC, and imBTC.

Wrapped Ether (wETH)

Even though is the native currency of the Ethereum blockchain, it is not compatible with Ethereum’s ERC-20 tokens. Therefore, you cannot directly trade ETH for ERC-20 tokens without using a trusted third party, such as a centralized exchange.

To solve this problem, a collection of Ethereum projects led by 0x Labs created an ERC-20 compliant token called . To create wETH, you send ETH to a smart contract to lock it up. The smart contract then returns wETH tokens at a 1:1 ratio. To redeem your locked ETH, you can send the wETH back to the smart contract. A variety of platforms facilitate this process, including Relay and Airswap.

Other Wrapped Cryptocurrencies:

Bitcoin and ether are not the only wrapped cryptocurrencies. For example, Ren supports wrapped versions of many popular cryptocurrencies:

• : renBCH

• : renZEC

• : renFIL

• : renDOGE

• : renDGB

• : renLUNA

Additional wrapped versions of popular cryptocurrencies include:

• Filecoin (FIL): wrapped filecoin (wFIL)

• Zcash (ZEC): wrapped zcash (wZEC)

• : wrapped monero (wXMR)

• : wrapped BNB (wBNB)

• : wrapped NXM (wNXM)

• : wrapped matic (wMATIC)

• : wrapped celo (wCELO)

While wrapped cryptocurrencies have thrived on Ethereum, many other projects have sought to benefit from this new interoperability solution. , which has become increasingly popular with DeFi applications, also allows you to wrap crypto assets. For example, here are some of the popular cryptocurrencies and their Binance-wrapped equivalents:

• : Binance wrapped XRP (bXRP)

• : Binance wrapped USDT (bUSDT)

• Bitcoin Cash (BCH): Binance wrapped BCH (bBCH)

• : Binance wrapped DOT (bDOT)

Wrapped cryptocurrencies have improved liquidity and supercharged the cross-chain flow of assets, particularly benefitting Ethereum’s DeFi ecosystem. These assets have enhanced the much-needed interconnection between the blockchain community’s many ecosystems, making new forms of and collaboration possible.