What are Wrapped Tokens and Why Do We Need Wrapped Tokens?
We all have a habit of keeping our money inside our wallets, to keep them secure and stored in one place, so what do we want to tell you, is that our cryptocurrency can also be kept inside some digital vaults?
And these digital Vaults may create you a new kind of asset called Wrapped tokens! These things may sound peculiar and interesting but we will be explaining to you about these coins and would let you navigate through the journey of the creation of these wrapped tokens. If you are interested in bitcoin visit EthereumCode.app.
What is a Wrapped Token?
Wrapped tokens have become a crypto tokenized version. Its asset value is pegged so that it can be represented and can be redeemed at a point. It also represents some asset that is not originally held on the blockchain. If you want to know more about wrapped tokens, let us tell you that it is similar to a stablecoin whose main reason is to capture the value of other assets. Compared to a stablecoin, it is a fiat currency and at the same time, it is an asset to a wrapped token that usually accompanies the core of the blockchain. Different systems are associated with a blockchain, so there is no good way to transfer information to it. Blockchains with wrapped tokens enhance interoperability; the underlying tokens can go cross-chain, in short. Keep in mind that you are a normal user, and you don’t need to worry about the wrapping and unwrapping process. You can start your trading with tokens wrapped like other cryptocurrencies, such as the BTC/WBTC market on Binance.
Why Do We Need Wrapped Tokens?
Blockchain was developed at different times and with different features, so technically it is going to be impossible. As yet unknown with the BTC blockchain, what is going on with the Ethereum blockchain. Without the pNetwork i.e., connectors, it becomes impossible to use cross-chains. If there exist some tokens wrapped like pTokens, you will build a relationship with the blockchain and be able to benefit from its functions.
What is considered the most relevant reason for using pTokens is the DeFi ecosystem so that you can quickly and easily enter and use lending, staking, produce farming, and other platforms in it. Most of the DeFi projects that have been seen are located on the Ethereum blockchain, but there is also a very rapid expansion of solutions with multiple networks. To generate pTokens it is necessary to first direct all efforts of pNetwork to the individual blockchains.
How does a Wrapped token work?
You can use Wrapped BTC (WBTC) as an example, Bitcoin on Ethereum is a version of the token you will find. Wrapped tokens will require a custodian, an equivalent amount is held for one unit. Merchant BTC is sent to the mint for custodians to learn how the wrapping process works. WBTC is mined on Ethereum with the BTC amount sent with the custodian, when the WBTC is converted back to BTC, thus making a burning request to the merchant custodian.
Now, here are the following steps you will have to follow to issue the currency:
- It is transacted by the support of a decentralised autonomous organisation (DAO), which acts as the wrapper and unwrapper of the wrapped token, assuming you tokenized bitcoin in the form of WBTC, a wrapped token for Bitcoin.
- Now, suppose you are the trader who wants to mint his WBTC on any different blockchain network, suppose Binance, so the DAO will act as the custodian of your token who will be minting this WBTC on Binance Blockchain.