If you use Ethereum, most tokens you trade and invest in will likely use the ERC-20 token standard. This has become a popular option for Decentralised Applications (DApps), wallets, and projects because it offers practicality to most users. But this presents a problem for Ethereum’s native coin, Ether.
Ether doesn’t follow the same rules as ERC-20 tokens, but there is a demand for it to be used in the same way in ERC-20 DApps. However, there is a solution; Wrapped Ether, aka WETH. It has become a useful tool for investors and holders across many projects and DApps.
You may not be aware of WETH, what it can do, and how to get it, so let’s go through it.
What are “Wrapped Tokens”?
WETH is a wrapped token, so first, we’ll define that. A wrapped token is a cryptocurrency token pegged to the value of another cryptocurrency. It’s called a “wrapped token” because the original asset is “wrapped” in a digital vault that allows the wrapped version to be created on another blockchain.
But why? Different blockchains offer different functionalities, and one of the biggest issues people have is the lack of interoperability between different blockchains. For example, the Bitcoin blockchain can’t talk to Ethereum and vice versa. Wrapped tokens can bridge the gap between different blockchains.
What is WETH?
WETH is an ERC-20 token on Ethereum pegged to the price of Ether. While Ethereum’s native token ETH, can be used to pay gas fees, WETH can’t. But WETH has a wider range of uses than Ether and has become very popular in the Decentralised Finance (DeFi) ecosystem. Pretty much any wallet in the Ethereum network will support WETH.
On Ethereum, almost all fungible tokens follow the ERC-20 standard developed in 2015. This was developed to have a standard set of rules for tokens on the Ethereum blockchain. This simplified token launches and made all tokens on the blockchain comparable.
Unfortunately, the Ether token itself does not comply with the ERC-20 standard. WETH solves this problem.
For example, most Defi DApps now accept ERC-20 tokens for investment and staking opportunities. If you want to add ETH to a liquidity pool or use it as collateral, having it in an ERC-20 version is easier, which brings WETH into play. This provides the most compatibility across the blockchain and saves time developing new smart contracts.
How to Wrap Ether (ETH)
Wrapping Ether is simple – you just send your ETH to a smart contract that provides you with WETH in return. This means that all WETH created is backed up completely by ETH reserves.
To wrap Ether, you can interact directly with the WETH smart contract so that it takes your ETH and credits your wallet with WETH at a 1:1 ratio (not including transaction fees). Converting back requires another smart contract interaction, but it’s largely the same process.
However, another, easier route is to swap another token for WETH through a crypto exchange.
Interoperability between different blockchains is a big challenge for the industry. As more blockchains are created, the number of bridges between them increases exponentially. For the foreseeable future, wrapped tokens are set to be a large part of the solution, and WETH is an element of that.