Basically, there is no difference between ETH and WETH because WETH is simply a version of ETH. Tokens are wrapped for use on any blockchain that it is not native to. For example, use BTC on the Ethereum blockchain.
Since most blockchains have a silo structure, they do not provide the ability to interoperate or transfer native tokens from one blockchain to another. As such, holders of a particular cryptocurrency may not like this.
But why do we need the WETH version to use on the Ethereum blockchain?
ETH and WETH are exactly the same?
The biggest difference is that WETH is designed according to ERC-20 standards, while ETH is not. WETH was created because ETH could not be used for various types of DeFi applications. Thus, ETH tokens in an ERC-20 compatible standard for easy use across multiple dApps (decentralized applications). Additionally, users can create their own versions of tokens for custom DeFi applications.
In the case of WETH, it is equivalent to ETH. This means there is no price difference between ETH and WETH. Therefore, if you want to use ETH to join a custom dApp, you can easily convert it to WETH on a dApp (such as 1inch) and then continue using it.
Remember that ERC-20 is the technical standard for issuing tokens on the Ethereum blockchain, so it determines the properties of the token. One of the most important aspects of ERC-20 tokens is that it is fungible, i.e. one token will always be exchangeable for another token of the same value.
Why can’t ETH be used for dApps on Ethereum?
ETH was born before token standards were created. This means it doesn’t follow the ERC-20 rules, making it harder to use often. Thus, to eliminate the need for a third party, simply deposit ETH into a smart contract and receive WETH in return.
ETH is fungible as it is a coin.
How Wrapped Tokens Work?
When you want to create a wrapped version of any token, you typically send the original asset to a centralized custodian (ideally a smart contract). This centralized entity can be a multi-signature wallet, a DAO, and even a smart contract (in the case of Ethereum). The process works as follows:
– Assuming you need to use WETH on Ethereum, just connect the wallet containing ETH to a decentralized exchange, such as 1inch.
– Once the wallet is connected, decide how much ETH you want to convert to WETH and swap the tokens.
– Then you get WETH in exchange for sold ETH. You can use this tutorial on any decentralized application you want.
For centralized entities, once they receive the original asset, they will burn it and mint a wrapped version on the blockchain that is not where the token was originally created. When users want to get their original assets back, they simply burn wrapped tokens and mint the original assets on the native network.
Wrapped tokens are stablecoins?
The mechanism is quite similar to how stablecoins work in that the centralized entity mints and burns the original and exotic assets respectively. However, one important difference to note here is that in the case of stablecoins, it is easy for the issuer to obtain a variety of reserve assets (besides fiat) to issue stablecoins. In contrast, that is not possible with wrapped tokens. However, the ideas are quite similar so it is easy to get confused.
Do we need wrapped token?
The answer is yes. For a decentralized space that the crypto world is actively building, we need to be able to seamlessly use different products across various networks – like transferring money from a local bank to a local bank. international goods if accepted by the two entities. While this interoperability is certainly easy with the centralized entities involved, it becomes too difficult for entities that operate on the blockchain as there is a much larger network and it is somewhat non-existent. trustworthy.
The ability to move original assets from one network to another is certainly useful when users don’t want to sell their assets to buy others. For example, a large Bitcoin holder who wants to use it on Ethereum needs to first sell BTC in exchange for USDT. Once they have USDT, they can easily use it to participate in any dApp of their choice.
Wrapped tokens can be seen as derivatives in traditional finance, primarily because they follow the price of the underlying asset. Therefore, they are tied 1:1 to the asset. While not exactly the same as a traditional derivative, the wrapped token provides interoperability for users in the ecosystem.
Ethereum is not the only network that has the ability to create and apply wrapped tokens. You can also generate wrapped tokens of exotic assets on Binance Smart Chain (BSC).
How to send WETH to Coinbase/MetaMask?
Sending WETH is like sending any other cryptocurrency between different wallets.
– Swap WETH at DEXs like 1inch, Uniswap, SushiSwap, etc…: Access the DEX and swap ETH to get the equivalent amount of WETH (minus fees).
– When you see WETH in your wallet (such as Metamask), you can transfer them to another wallet that the seller wants. If you don’t see WETH, just select “Import Tokens” and you will be asked to claim additional WETH as an asset.
– Once done, simply copy your personal wallet address and paste it into your Metamask wallet to initiate the transfer. Again, if the wallet has not received the assets, simply add the token details on the wallet.
In a nutshell, the purpose of wrapped tokens is to add an extra layer of interoperability between different networks. For most users, it makes no sense to convert a foreign asset like BTC to an ERC-20 compatible token (such as USDT) and then continue to convert to WBTC. In most cases, they will use USDT to do most of the transactions. But WETH’s mission is to create a seamless experience for native ETH users.