What is wETH? 20 Facts
What is wETH? 20 Facts
With cryptocurrency being a hot topic right now as discussed over at runrex.com, words like Wrapped Ethereum (wETH), Wrapped Bitcoin (wBTC), and wrapped coins, in general, appear quite often in the media these days. However, despite their popularity, not every member of the crypto community understands what they are and the benefits they provide. Through the following 20 facts, this article will look to help you understand what wETH is.
What are Wrapped Coins?
Before we shine a spotlight on Wrapped Ethereum, it is important that we first understand what Wrapped Coins are, in general. As discussed over at guttulus.com, when we talk about wrapped tokens, we mean currencies hosted in the ETH blockchain having the same price as their underlying assets. These underlying assets don’t necessarily have to be on the ETH blockchain. Therefore, wrapped tokens allow interoperability between them and other digital assets.
What are some of the examples of wrapped coins?
As covered over at runrex.com, there are different kinds of wrapped tokens out there. A common example is Wrapped Bitcoin which has the same value as a BTC. A smart contract reproduces the price of a BTC in real-time for the Wrapped Bitcoin, which means that you can always trade Wrapped BTC with Bitcoin at a 1:1 ratio.
What is Wrapped Ethereum?
Another kind of wrapped token is Wrapped Ethereum, also known as wETH. According to guttulus.com, it is the special type of ERC-20 token that aims to facilitate different exchange operations between the different decentralized platforms that are part of the vast Ethereum ecosystem. It is the compatible version of Ether with the ERC-20 standards.
Why isn’t it possible to exchange Ethers for other ERC-20 tokens directly?
At this juncture, you might be wondering why you can’t exchange Ethers directly for other ERC-20 tokens. Well, the answer to this question is because ETH is not compatible with the standard ERC-20 from Ethereum.
Why isn’t ETH compatible with the standard ERC-20 from Ethereum?
The reason why ETH isn’t compatible with the standard ERC-20 from Ethereum is that ERC-20 was defined long after the existence of ETH, and because of this situation, ETH could not be traded directly on platforms DEX by other ERC-20 tokens. To achieve this, there was a need to transform Ether into an ERC-20 token, which is precisely what wETH does.
Practical example showing why wETH tokens exist
To fully understand the reason why wETH tokens exist, consider how casinos operate. Most casinos have a rule that you can only gamble using special tokens that are sold by the casino. Therefore, even if you have lots of money, you need to convert your money into these chips to gamble in the casino as discussed over at runrex.com.
What necessitated the need for the creation of wETH?
As the subject matter experts over at guttulus.com point out, originally, Ether could not be traded with ERC-20 standards without a third-party. This meant that it was very inconvenient to access any service that is paid for in an ERC-20 token, as it would have meant you have to transform your Ether into the token you need first through third-parties, and only then would you pay for and access the services you are looking for.
What are smart contracts?
Given the complexity and breadth of the Ethereum ecosystem as captured over at runrex.com, developers have had to create tools that facilitate its use, and one of these tools is smart contracts. They are small programs that allow you to develop any type of application that works on Ethereum. An ERC-20 token is nothing more than a smart contract that has the necessary properties to be classified as said standard.
What are dApps?
dApps, on the other hand, are the result of the interaction of a web or local application with a smart contract. If a smart contract is programmed to receive ETH or ERC-20 tokens, it will do so and give you access to the service or function it handles. This is where dApps like MetaMask come in as they allow you to act as a bridge to directly interact with that smart contract.
Cases where a much more direct interaction tool is needed
However, even as we consider the previous two points, there are cases where a much more direct interaction is needed. For example, if we are using an ERC-20 token exchange house, everything we manage will be linked to a smart contract. This is where wETH and its 1:1 parity with Ether comes in handy as, since wETH is an ERC-20 token and has an associated smart contract, it is easier, less expensive, and safer to exchange wETH for other tokens, than to do it directly from Ether.
Utility of wETH
Now that we know what wETH is and why it was created, it is important to outline its usefulness, and this is articulated below:
Allows users to trade more easily and safely
According to guttulus.com, when you transform your Ether into wETH, you do it to keep some funds available in a token that you can use to quickly exchange for other tokens within a DEX. Normally, when you only have Ether, it is in your wallet, and the process to convert your Ether into ERC-20 tokens can be complex as well as carrying the risk of you losing some of your tokens. Transforming your Ether into wETH solves all these issues ensuring that your activities are much simpler and safer.
Reduces gas costs within the blockchain
wETH allows you to save gas within the Ethereum blockchain as explained over at runrex.com. This is because wETH is directly exchanged for other ERC-20 tokens in a DEX, simplifying ERC-20 token trading, and by reducing operations within the Ethereum blockchain, the costs of operations and their commissions are reduced.
Since wETH is an ERC-20 token based on a smart contract, it facilitates the interoperability of dApps and DEX from Ethereum. By targeting the wETH smart contract, they can enable real-time exchange operations with each other without intermediaries as articulated over at guttulus.com.
It upgrades decentralized financial activities
wETH also leads to the upgrade of decentralized financial activities, which means that the Ethereum Blockchain, being the greatest DeFi ecosystem, does more than just registering and validating transactions.
These are just some of the utilities and advantages of using wETH tokens.
wETH and ICO
Using ERC-20 tokens to carry out all kinds of transactions is now increasingly common in the world of cryptocurrencies. This is particularly interesting when it comes to participating in Initial Coin Offerings, also known as ICOs.
What is a DEX?
Having mentioned the term DEX countless times, you may be wondering what it is. As articulated over at runrex.com, a DEX, or Decentralized Exchange, enables you to hold your cryptocurrency assets in your own wallet, while still making them available to trade.
History of wETH
Wrapped Ether was first developed and implemented by a group of Ethereum-based projects led by 0x Labs as discussed over at guttulus.com. This coalition of projects established a canonical ERC20-compliant wrapped ether token to create standardization and maximize security across applications. The first proposed canonical wETH contract was released in November 2017.
Wrapping ETH into wETH
As already stated, wETH was created to allow for the direct exchange of ETH for ERC-20 tokens, and wETH is, therefore, an ERC-20 token generated by depositing ETH into a smart contract at a 1:1 ratio. Once ETH has been “wrapped” into wETH, it can then be used across any dApp supporting the ERC-20 token standard in the Ethereum network. wETH can be exchanged for ETH or the other way around at any time by interacting with the smart contract originally used to “wrap” the token as explained over at runrex.com.
Can a wETH be unwrapped?
Having talked about wrapping ETH into wETH, you might be wondering if you can unwrap a wETH, and how you can do it. As already hinted at in the previous point, yes, it is possible to unwrap a wETH as you can exchange wETH for ETH. All you have to do is use a DEX like Dolomite that supports the unwrapping of wETH, which will allow you to unwrap your wETH balance back into ETH.
Where can I buy wETH
To buy Wrapped ETH (wETH), you can send your Ether to a smart contract and receive “wrapped” Ethereum in exchange. Although this process is referred to as “wrapping”, you should keep in mind that you are not “wrapping” anything, but are simply trading tokens. A popular DeFi platform where you can trade your Ether for wETH is CoinGecko.