Bridging tokens often works fine, but note that moving tokens across blockchains may involve risks. There were cases where some bridges had their smart contracts compromised. If you want to bridge wrapped Bitcoin, wrapped Ethereum, or another token, carefully research the platform you use before using their bridging services. When comparing WETH vs ETH, the primary distinction is that ETH itself is not ERC-20 compliant, while WETH is. This means that while ETH can be used for gas fees and executing smart contracts, it cannot directly interact with ERC-20 protocols without conversion. On the other hand, WETH functions like any other ERC-20 token, making it more adaptable within DeFi ecosystems.
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- Roughly ~3% of the circulating ETH supply is locked in the WETH token contract making it one of the most used .
- This comprehensive guide explains the inner workings and applications of WETH.
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For example, Bitcoin (BTC) is a coin because it runs on the Bitcoin blockchain and helps validate transactions. Similarly, ETH is a coin because it runs on its native chain, the Ethereum blockchain. You are able to unwrap WETH for ETH by using the WETH smart contract.
The impact Wrapped Ethereum (WETH) has on the blockchain space
ETH can be wrapped manually by interacting with the WETH smart contract. WETH can also be created using decentralized exchanges (DEXs) such as Uniswap. Most DeFi DApps nowadays accept ERC-20 tokens for investment and staking opportunities. If we want to add ETH to a liquidity pool or use it as collateral, it’s we are now accepting bitcoin much easier to have it in an ERC-20 version. This provides the most compatibility across the blockchain and saves time developing new smart contracts.
- It can be used for yield farming, lending, and providing liquidity to a variety of liquidity pools.
- The merchant, in this case, would send the person’s crypto to a custodian.
- As these are in early access, they aren’t perfect, but are a great way to test out cool new features.
- This mechanism ensures that the wrapped version maintains parity with ETH.
How to Swap WETH to ETH (and Vice Versa)
Hyperlinking between web pages conveys to the reader the site structure and guides the navigation of the site, which often starts with a home page containing a directory of the site web content. Some websites require user registration or subscription to access content. End users can access websites on a range of devices, including desktop and laptop computers, tablet computers, smartphones and smart TVs. WETH is designed to be interoperable, allowing you to use your ETH on other blockchains like Polygon, Avalanche, or BNB Chain through blockchain bridges. By wrapping your ETH and moving it to these networks, you can access DeFi protocols, liquidity pools, and applications on those platforms while still holding the value of your Ethereum. ETH serves as the native currency of the Ethereum network, essential for paying gas fees and securing the network through staking.
What Is WETH and How to Wrap It?
Tokens, on the other hand, are built on existing blockchains and can represent anything from digital assets to loyalty points. The reason how to sell bitcoin in the uk 2021 NFT platforms prefer wETH relates to smart contract functionality. Auction mechanisms and automated trading features work more smoothly with ERC-20 tokens than with native ETH. While this might seem like an oversight, it actually reflects the rapid evolution of the Ethereum ecosystem. The ERC-20 standard emerged as developers recognized the need for a common framework that would allow tokens to interact seamlessly with wallets, exchanges, and applications.
Enhanced Trading Capabilities
However, Ethereum’s native token does not adhere to the ERC-20 standard, which is crucial for interoperability within the Ethereum blockchain. ETH is the coin, and the wrapped version of the coin becomes the WETH token. Due to this, it can be used for yield farming, lending, and used for providing liquidity to a variety of liquidity pools. Ethereum, the blockchain platform, has its native token known as ETH.
Aave is a decentralized lending platform that allows users to lend and borrow a variety of cryptocurrencies. The largest fraction of crypto users (around 31%) are between 18-29, an age demographic that typically includes college students and new graduates. It’s impractical for these users to spend hundreds of dollars on transaction fees. The first thing to understand is that not every token on Ethereum is technically alike.
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You can buy wETH on DEXs with other ERC-20 tokens or wrap ETH through apps like Uniswap, MetaMask, or OpenSea. If you want to unwrap or get ETH back, you can send wETH back to the custodian, who will then burn the wETH and return your original ETH. This mechanism ensures that the wrapped version maintains parity with ETH. Therefore, wETH is designed to bring interoperability and enable DeFi and dApps users to get easy exposure to ETH without leaving their ecosystem. Note that the Coinbase wallet supports the Ethereum network and « all ERC-20 » tokens, which means that you will be able to easily add your WETH to the wallet.
Many DeFi protocols are built specifically around the ERC-20 standard. When developers create decentralized exchanges, lending platforms, or yield farming protocols, they often design their smart contracts to work exclusively with ERC-20 tokens. Since ETH doesn’t conform to this standard, it gets left out in the cold. The primary purpose of Wrapped Ethereum is to make Ethereum compatible with the ERC-20 token standard, which is widely used across decentralized finance platforms and applications.
Why do we need to Wrap ETH?
So far, we have only mentioned the Ethereum blockchain, which may leave you wondering if you can wrap ETH on other blockchains. Therefore, it is possible to wrap Ethereum outside the native blockchain. ETH preceded the development of the ERC-20 standard, and the lack of compatibility means customized programming for each dApp, which can be costly.
WETH is required by some DeFi protocols in order to function properly. We’ll get into more detail on this later, but essentially some protocols require you to have ERC-20 tokens in order to interact with them. One way to how to buy hxro think about this is to compare fiat currency (legal tender) with a gift card. Both have value and both can be used as a form of payment, but they exist on different platforms. Fiat currencies exist independently while gift cards rely on someone else’s payments infrastructure / ecosystem. Understanding the difference between a coin and a token is critical to clearly understand the role of wrapped Ether.