Traders who use the Ethereum network are familiar with the ERC-twenty technical standard and have well-nigh likely traded and invested in tokens that utilize it. After all, its practicality, transparency and flexibility have made it the industry norm for Ethereum-based projects.

Equally such, many decentralized applications (DApps), crypto wallets and exchanges natively back up ERC-twenty tokens. However, there’s ane problem: Ether (ETH) and ERC-20 do not exactly follow the same rules, every bit Ether was created way before ERC-20 was implemented every bit a technical standard.

Then, why does wrapped ETH affair? Briefly put, ERC-20 tokens can simply exist traded with other ERC-20 tokens, not Ether. In lodge to bridge this gap and enable the commutation of Ether for ERC-20 tokens (and vice versa), the Ethereum network introduced wrapped Ethereum (wETH). That said, wETH is the ERC-20 tradable version of ETH.

What is wrapped Ether (wETH)?

As mentioned, wETH is the wrapped version of Ether, and it’s named as such considering wETH is substantially Ether “wrapped” with ERC-20 token standards. Wrapped coins and tokens well-nigh have the same value as their underlying assets.

And so, is wrapped Ethereum safe to merchandise and invest in? The answer is aye, as far as Ethereum is concerned. wETH is pegged to the price of ETH at a 1:1 ratio, and so they’re basically the same. The only departure between wrapped tokens and their underlying assets is their utilise cases, especially for older coins like Bitcoin (BTC) and Ether.

Wrapped tokens are like stablecoins, to a sure degree. Come to think of it, stablecoins can also be considered “wrapped USD,” since they have the aforementioned value as their underlying asset, the U.s.a. dollar. They tin also be redeemed for fiat currencies at whatever fourth dimension.

Bitcoin also has a wrapped version called Wrapped Bitcoin, which has the same value as Bitcoin. The aforementioned goes for other blockchains similar Fantom and Avalanche.

Wrapped Ethereum tokens can be unwrapped subsequently they’ve been wrapped, and the procedure is unproblematic: Users but accept to send their wETH tokens to a smart contract on the Ethereum network, which will then render an equal amount of ETH.

Wrapped tokens solve interoperability bug that most blockchains have and allow for the like shooting fish in a barrel substitution of 1 token for another. For instance, users cannot usually utilize Ether on the Bitcoin blockchain or Barrage on the Ethereum blockchain. Through wrapping, underlying coins are tokenized and wrapped with a certain blockchain’s token standards, thus allowing for their use on that network.

How does wrapped Ethereum (wETH) work?

Dissimilar Ether, wETH cannot be used to pay gas fees on the network. Because it is ERC-20 compatible, yet, information technology tin can be used to provide more investment and staking opportunities on DApps. wETH can too be used on platforms like OpenSea to purchase 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 the wETH is backed by a reserve.

Whenever wETH is exchanged back into ETH, the exchanged wETH is 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 exist acquired by swapping other tokens for it on a crypto commutation, such equally SushiSwap or Uniswap.

And so, what is the indicate of wrapped Ethereum? According to WETH.io, the ultimate goal is to update Ethereum’southward codebase and make it ERC-20 compliant in itself, eventually eliminating the need to wrap Ether for the purpose of interoperability. But, until so, wETH continues to remain useful in providing liquidity to liquidity pools, as well equally for crypto lending and NFT trading, among others.

In short, it’s not really a matter of ETH vs. wETH since wrapping Ethereum is more of a workaround than a permanent solution. With the number of upgrades slated to happen on the Ethereum network over the years, Ethereum seems to be moving closer toward better interoperability by the day.

How to wrap Ether (ETH)?

There are several ways to wrap Ether. As mentioned, one of the most common ways to practise and then is by sending ETH to a smart contract. Some other method is swapping wETH for another token via a crypto exchange.

Allow’s look at three ways to generate wETH in the sections below:

Using the wETH smart contract on OpenSea

In this case, we’ll be using the OpenSea platform to catechumen ETH to wETH using the wETH smart contract.

First, click on “Wallet,” located at the height-right corner of OpenSea. So, click on the three dots next to Ethereum and select “Wrap.”

Step 1: Select Wrap to convert ETH to WETH on OpenSea

Next, enter the value for the corporeality of ETH to be converted to wETH. Then, click “Wrap ETH.” This will call the wETH smart contract to catechumen ETH into wETH.

Step 2: Enter the amount of ETH that you want to convert to WETH

A MetaMask pop-upwardly will announced, prompting the user to sign the transaction.

Step 3: Confirm the transaction

A confirmation message volition so appear one time the wrap is complete.

Step 4: Confirmation of conversion of tokens

The converted wETH volition show up in the wallet portion of the user’south OpenSea account. The wETH will bear a pink Ethereum diamond as its logo, distinguishing it from ETH.

Generating wETH via Uniswap

When using Uniswap, a user first has to connect their wallet and ensure the Ethereum network is selected.

Step 1: Connect your wallet and select the Ethereum network on Uniswap

Then, click “Select Token,” located at the bottom field, and select wETH from the list of options.

Step 2: Select "WETH" from the list of tokens available

At present, input the amount of ETH to be converted to wETH and click “Wrap.”

Step 3: Enter the amount of ETH that you want to convert to WETH and click "Wrap"

The transaction will and then need to be confirmed from the user’s crypto wallet. Gas fees in ETH will besides need to exist paid at this phase. Once all the details are in order and the transaction has been confirmed from the user’s cease, all that’southward left to do is to wait for the transaction to exist confirmed in the blockchain.

Generating wETH with MetaMask

Upon opening the MetaMask wallet, brainstorm by ensuring that the selected network is “Ethereum Mainnet.” So, click “Bandy.”

Step 1: Select "Ethereum Mainnet" on MetaMask before clicking swap

Then, select wETH from the “Bandy to” field.

Step 2: Select WETH from the “Swap to” field

Next, input the amount of ETH to be swapped. Then, click “Review Swap.”

Enter the amount of ETH you want to swap and click Review Swap

A window displaying a quote of the conversion rate volition announced. Since it involves the conversion of ETH to wETH, the rate should be 1:1. To finalize the transaction, click “Swap.”

Step 4: Click "Swap" to finalize the transaction

How to unwrap Ether (ETH)?

Unwrapping Ether can too exist washed manually, such as by interacting with a smart contract. For instance, ETH can besides be unwrapped in the same style that it can be wrapped via the wETH smart contract on OpenSea. The simply difference is that instead of clicking “Wrap ETH,” the user has to click “Unwrap wETH.”

The same goes for swapping wETH back to ETH, which can exist washed by using Uniswap or MetaMask. The process for unwrapping is substantially the same as the process outlined above for wrapping ETH on both platforms. The only deviation is that the values should exist changed (from wETH to ETH).

What are the risks of using wrapped tokens?

Ethereum co-creator Vitalik Buterin himself pinpointed one of the main disadvantages of wrapped assets. According to Buterin, the primary problem with many of these wrapped assets is their sensitivity to centralization.

Currently, wrapping assets are not Turing-complete and cannot be automated via the Ethereum blockchain. As discussed, wrapping is usually but carried out using key programs, thus the concern for possible manipulation and abuse.

Issued wrapped tokens depend on the 3rd-party platforms that effect them, inevitably subjecting decisions pertaining to wrapped avails to central entities. Buterin voiced his concerns about the possibility of such a mechanism undermining the core principles of decentralization and transparency that the blockchain manufacture stands for.

Future of wrapped tokens

Currently, wrapped tokens make it possible for blockchains to interact with one some other. This allows for a much more than decentralized ecosystem, where tokens can be hands traded or exchanged between different platforms.

Better interoperability solutions are on the horizon, such as updating blockchains’ codebases to be compatible with each other or using span chains. For Ethereum, at least, the plan is to somewhen phase out the use of wrapped tokens like wETH alongside network developments.

This does non hateful that wrapped tokens are going away someday before long. They will proceed to play an important part, providing valuable service to those who need it. For 1, wrapped tokens can serve as a stabilizing force between unlike blockchains, as they help maintain consequent prices between them.

They tin also help facilitate cross-chain atomic swaps, which are becoming increasingly popular. In the long run, still, wrapped tokens volition likely go less and less necessary as blockchains become more interoperable.