Wrapped Cryptocurrencies: Everything You Need to Know About Interoperable Crypto Assets

Wrapped cryptocurrencies allow crypto assets to be used on non-native blockchains, improving their interoerability.

Wrapped Cryptocurrencies: Everything You Need to Know About Interoperable Crypto Assets

Photo Credit: Unsplash/ Kanchanara

Wrapped crypto tokens are classified as redeemable and cash-settled

Highlights
  • Users can enter smart contracts to wrap crypto tokens
  • Wrapping crypto tokens increases inter-blockchain operations
  • However, wrapping crypto tokens could expose them to vulnerabilities
Advertisement

The cryptocurrency sector stands at a trillion-dollar valuation as of Tuesday, and is expected to reach its full potential over the coming years as more countries experiment with digital assets under regulatory frameworks. In the meantime, developers have been creating tools to align with digital assets, that would scale their usability in the long run and allow them to be used on a wider basis. Wrapped crypto assets are among these crypto tools that enable interoperability of crypto assets across different blockchains.

Wrapped cryptocurrencies allow crypto assets to be used on those blockchains that these assets are not native to.

The most popular wrapped crypto asset as of today is Wrapped Bitcoin (wBTC). It allows Bitcoin to be used on the Ethereum blockchain.

For Bitcoin holders, this eliminates the process of converting their BTC tokens into ETH before utilising their investments on activities supported on the Ethereum blockchain.

Currently, 176,197 wBTC tokens are in circulation, with each priced the same as Bitcoin — $21,768 (roughly Rs. 17.9 lakh), as per the latest CoinMarketCap statistics.

Wrapped cryptocurrencies are pegged to the value of other original cryptocurrency or reserve assets like gold or stocks. These crypto tokens are classified in redeemable and cash-settled categories. As their names suggest, redeemable wrapped tokens can be exchanged to get back the underlaying asset whereas cash-settled tokens cannot be exchanged for the underlaying asset.

Crypto holders can enter into smart contracts to ‘wrap' these assets or even use merchants like Kyber and DeversiFi to do so.

The holders of wrapped cryptocurrencies can unlock their original assets by trading their holdings back into the smart contract. Wrapped tokens increase liquidity and capital efficiency for both centralised and decentralised exchanges.

However, it is worth noting that wrapping and unwrapping cryptocurrencies means that these assets will be subject to the security features of the blockchain it is transitioned to. The new blockchain might not offer the same level of security as the original one, and the wrapped asset could be more vulnerable during the time it is traded on that blockchain.


The OnePlus 11 5G was launched at the company's Cloud 11 launch event which also saw the debut of several other devices. We discuss this new handset and all of OnePlus' new hardware on Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.
Affiliate links may be automatically generated - see our ethics statement for details.
Comments

For the latest tech news and reviews, follow Gadgets 360 on X, Facebook, WhatsApp, Threads and Google News. For the latest videos on gadgets and tech, subscribe to our YouTube channel. If you want to know everything about top influencers, follow our in-house Who'sThat360 on Instagram and YouTube.

Further reading: Cryptocurrency, Wrapped Bitcoin, wBTC
Radhika Parashar
Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More
FTX’s Sam Bankman-Fried Used VPN to Access Internet Recently, Could Be Hiding Online Activity: US Prosecutors
Facebook Gadgets360 Twitter Share Tweet Snapchat LinkedIn Reddit Comment google-newsGoogle News

Advertisement

Follow Us
© Copyright Red Pixels Ventures Limited 2024. All rights reserved.
Trending Products »
Latest Tech News »