Wrapped Token

A wrapped token is a tokenized version of a cryptocurrency that exists on a different blockchain than its native network. Wrapped tokens are designed to bring the liquidity and value of one blockchain's native asset to another blockchain ecosystem. For instance, Wrapped Bitcoin (WBTC) is a representation of Bitcoin (BTC) on the Ethereum blockchain, allowing BTC holders to interact with Ethereum-based decentralized applications (dApps) and DeFi protocols. Wrapped tokens are backed 1:1 by the original asset, meaning for each wrapped token in circulation, the equivalent amount of the underlying asset is held in reserve by a custodian or smart contract. Wrapping a token enables cross-chain compatibility and allows assets to interact with different blockchain ecosystems without requiring the user to sell or exchange the original asset. Wrapped tokens are essential in improving liquidity and enabling interoperability between blockchain networks.