wETH is the tradable and ERC-20 compatible version of ETH and can be used to interact with other ERC-20 assets.
Traders using the Ethereum network are familiar with the ERC-20 technical standard and have most likely traded and invested in tokens. After all, its practicality, transparency and flexibility have made it the industry standard for Ethereum-based projects.
As such, many decentralized applications (DApps), crypto wallets, and exchanges natively support ERC-20 tokens. However, there is a problem: the ether
and ERC-20 do not follow exactly the same rules as Ether was created long before ERC-20 was implemented as a technical standard.
So why is packed ETH important? In a nutshell, ERC-20 tokens can only be traded with other ERC-20 tokens, not Ether. To close this gap and enable the exchange of Ether for ERC-20 tokens (and vice versa), the Ethereum network introduced wrapped Ethereum (wETH). That said, wETH is the ERC-20 wearable version of ETH.
What is wrapped ether (wETH)?
As mentioned, wETH is the wrapped version of Ether, and is named so because wETH is essentially “wrapped” Ether using the ERC-20 token standards. The wrapped coins and tokens have virtually the same value as their underlying data.
So is wrapped Ethereum safe to trade and invest? The answer is yes, as far as Ethereum is concerned. wETH is pegged to the price of ETH in a 1:1 ratio, so they are basically the same. The only difference between wrapped tokens and their underlying assets is their use cases, especially for older coins like Bitcoin.
Wrapped tokens are like stablecoins, up to a point. Come to think of it, stablecoins can also be considered “wrapped USD” because they have the same value as their underlying asset, the US dollar. They can also be exchanged for fiat currencies at any time.
Bitcoin also has a wrapped version called Wrapped Bitcoin, which has the same value as Bitcoin. The same applies to other blockchains such as Fantom and Avalanche.
Wrapped Ethereum tokens can be redeemed after they are wrapped, and the process is simple: users just need to send their wETH tokens to a smart contract on the Ethereum network, which will then return an equal amount of ETH.
Wrapped tokens solve interoperability issues that most blockchains have and allow the easy exchange of one token for another. For example, users cannot normally use Ether on the Bitcoin blockchain or Avalanche on the Ethereum blockchain. Through wrapping, the underlying coins are tokenized and wrapped with the token standards of a particular blockchain, allowing their use on that network.
How does Wrapped Ethereum (wETH) work?
Unlike Ether, wETH cannot be used to pay gas fees on the network. However, since it is ERC-20 compliant, it can be used to provide more investment and participation opportunities in DApps. wETH can also be used on platforms like OpenSea to buy and sell through auctions.
Wrapping Ether tokens involves sending ETH to a smart contract. The smart contract will generate WETH in return. Meanwhile, ETH is locked to ensure that wETH is backed by a reserve.
Every time wETH is exchanged back for ETH, the exchanged wETH is either burned or removed from circulation. This is done to ensure that wETH remains pegged to the value of ETH at all times. wETH can also be purchased by trading other tokens on a crypto exchange, such as SushiSwap or Uniswap.
So what is the point of ending Ethereum? According to WETH.io, the ultimate goal is to update the Ethereum code base and make it itself ERC-20 compatible, eventually removing the need to wrap Ether for interoperability purposes. But until then, wETH will remain useful for providing liquidity to liquidity pools, as well as for crypto lending and NFT trading, among other things.
In short, it’s not really a question of ETH versus wETH, because Ethereum wrapping is more of a temporary solution than a permanent solution. With the number of updates planned for the Ethereum network over the years, Ethereum seems to be getting closer to better interoperability by the day.
How do I buy Ether (ETH)?
There are several ways to wrap ether. As mentioned, one of the most common ways to do this is by sending ETH to a smart contract. Another method is to exchange the WETH for another token through a crypto exchange.
Let’s look at three ways to generate WETH