Tokens & Assets

Wrapped Token

Token representing another cryptocurrency on a different blockchain

Definition

A wrapped token represents another cryptocurrency on a different blockchain. It's backed 1:1 by the original asset held in custody, enabling cross-chain functionality.

Wrapped Token is a token design term used to understand Token representing another cryptocurrency on a different blockchain. In practice, it matters because it affects how users evaluate protocols, compare opportunities, and avoid hidden assumptions.

Example

Ethereum, the network, existed before the ERC-20 token standard was establishd, thus ETH the token is not ERC-20 compliant. wETH is an ERC-20 compliant representation of ETH, enabling smart contracts to handle it like a regular ERC-20 token.

How it works

In practice, the concept shows up like this: Ethereum, the network, existed before the ERC-20 token standard was establishd, thus ETH the token is not ERC-20 compliant. wETH is an ERC-20 compliant representation of ETH, enabling smart contracts to handle it like a regular ERC-20 token.

Why it matters

Wrapped Token matters because small misunderstandings in DeFi can turn into bad pricing, liquidation, governance, custody, or smart-contract risk. A good mental model helps you compare protocols without relying on marketing language.

What to check

Treat it as a token-design concept: inspect supply mechanics, holder incentives, redemption paths, and governance controls. The main checks are: Custodial risk; Depeg risk; Bridge vulnerabilities.

Risks to Consider

Custodial risk
Depeg risk
Bridge vulnerabilities

Common Questions

Is a wrapped token the same as the original?

Functionally similar but technically different. They should maintain 1:1 value but carry additional risks from the wrapping mechanism. Wrapping mechanism can vary, the ideal is immutable contracts like for wETH.

What does Wrapped Token mean in DeFi?

Wrapped Token means Token representing another cryptocurrency on a different blockchain. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.

How is Wrapped Token used in practice?

A practical example: Ethereum, the network, existed before the ERC-20 token standard was establishd, thus ETH the token is not ERC-20 compliant. wETH is an ERC-20 compliant representation of ETH, enabling smart contracts to handle it like a regular ERC-20 token.

DeFi Glossary