What are Wrapped Tokens – Explained in Detail (Animation)

Learn everything about Wrapped Tokens, why Wrapped Tokens are being utilized and what the limitations are.

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0:00 Intro
00:11 What is a Wrapped Token
01:38 Why are wrapped tokens used
03:10 How do wrapped tokens work
04:04 Unwrapping process
04:24 Where are wrapped tokens used
04:52 on the Ethereum blockchain
05:13 on the Binance Smart Chain
05:47 Limitations

Wrapped Tokens: a tokenized version of an asset which makes it possible for the asset to exist on a different blockchain.

Simply put, the point of wrapping a token is to make it available on other blockchains so to have the same benefits of that specific blockchain.

A Wrapped token is also pegged to the value of the asset they represent.

The original asset, in the form of a native token on a blockchain, is placed in a wrapper (think of the wrapper like a digital vault), so that the wrapped version can be minted on a different blockchain.

The interesting part is that you can redeem them whenever you want via a process called unwrapping.

To help you understand this better, think about how a stablecoin gets its value.

Stablecoins have a derivative value from fiat currencies, for example, USDT is pegged to the value of the US dollar.

When it comes to wrapped tokens, the asset is usually a native token of a particular blockchain existing on another blockchain.

Imagine being able to use Ether currency on Binance Smart Chain with much lower fees compared to the more expensive gas fees on Ethereum.

It goes without saying that interoperability is a challenge with trading cryptocurrencies. Wrapped tokens provide the long-desired solution of native tokens being able to be used cross-chain.

#wrappedtoken #blockchain101 #cryptotokens

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