You know what ETH is. It’s time to get familiar with wETH – which allows you to trade ETH directly with alt tokens.
Wrapped tokens allow users to easily exchange tokens for one another. It solves interoperability issues, and makes the process of exchanging tokens much easier and efficient. Users can’t use Ether on the Avalanche network, or Polkadot with Bitcoin. However, wrapping tokens makes using them between these blockchain networks possible.
With wrapping, coins from blockchains are tokenized by being “wrapped” with a blockchain’s token standards. A tokenized coin can be used on more platforms within a blockchain network.
Wrapped Ethereum lets you be more flexible with trading on the Ethereum network.
Keep in mind that there are other wrapped tokens out there, but we’ll just be focusing on wETH today.
What’s wrapped Ether (wETH)?
wETH is Ether that is “wrapped” with ERC-20 token standards.
Wrapped Ethereum, or wETH, is an indispensable tool for anyone wanting to trade tokens with flexibility on the Ethereum blockchain. This flexibility is possible due to the ERC-20 token standard.
ERC-20 tokens are used solely on the Ethereum Network, and they follow a set of standards so that they can be traded, shared, transferred, or exchanged for other tokens between different crypto wallets.
Decentralized applications (dApps) built off of the Ethereum blockchain, including crypto exchanges and wallets also natively support ERC-20. These applications and platforms also might issue ERC-20 tokens to function as their platform’s currency, a share in a company, or even proof of ownership for any material asset, like a house. These tokens are also known as alt tokens.
Because there are so many dApps and services running on Ethereum, ERC-20 was developed so transactions of tokens on the Ethereum Network can be consistently recorded.
However, ERC-20 tokens can only be traded with other ERC-20 tokens – not ETH. Ether was created way before ERC-20, so they do not exactly follow the same standards rules.
To bridge the gap the Ethereum network introduced wETH, which lets users exchange Ether for ERC-20 tokens, and vice versa.
TL;DR: wETH is the ERC-20 tradable version of ETH.
What else can wETH do?
wETH is also pegged to the price of ETH at a 1:1 ratio, which makes wETH the same value as ETH. Since wETH’s price is virtually the same as the price of ETH at any given time, investors have also been trading with wETH. In this sense, wrapped tokens kind of operate similarly to stablecoins.
Wrapped tokens differ from other coins and assets due to their use cases. However, like stablecoins, they can also be redeemed for fiat currencies for any time.
Being ERC-20 compatible, wETH also opens more avenues for investment and staking opportunities on dApps, and for transactions on NFT marketplaces. wETH has also been proven useful in providing liquidity to liquidity pools, and for crypto lending. In short, wETH expands the possibilities of what you can do with ETH by providing more use cases.
However, wETH can’t be used to pay gas fees! Don’t forget to keep some ETH!
How does wETH work?
To wrap Ether tokens, users would send ETH to a smart contract. This smart contract generates an equivalent amount of wETH to be given back to the user. Meanwhile, the ETH sent is locked in the smart contract to ensure that the wETH is backed by a reserve.
If the wrapping process seems difficult, wETH can also be acquired by swapping other tokens on crypto exchanges for it.
Users can also “unwrap” wETH for ETH by sending their wETH tokens to a smart contract on the Ethereum network. The wETH tokens will then be returned as an equal amount of ETH.
Once exchanged, the wETH that has been “unwrapped” is burned or removed from circulation. Removing the exchanged wETH ensures that it stays pegged to the value at ETH, at all times.
How do I wrap Ether (ETH)?
Beyond swapping another token on a crypto exchange for wETH, there are many other ways to generate wETH.
Before you start, make sure you at least have some ETH in your wallet!
Via OpenSea’s wETH smart contract
Conveniently, NFT marketplace OpenSea offers a service to wrap and unwrap your ETH.
- Navigate to the top-right corner of OpenSea and click the Wallet icon.
- Click the three-dot menu for Ethereum and select Wrap.
- In the pop-up window, enter how much ETH you’d like to convert to wETH.
- Click Wrap ETH to call the wETH smart contract to perform the wETH conversion.
- A MetaMask window will appear, asking you to sign the transaction.
- Once the wrap is complete, you’ll see the following message:
- Once successfully converted, you’ll be able to see your converted wETH in the wallet of your OpenSea account. Keep in mind that the wETH logo is a pink diamond!
Once your wallet is connected to UniSwap, you’ll be able to generate wETH just like normally swapping tokens.
- Select the Ethereum Network on the top field.
- Click “Select Token” on the bottom, and then select wETH.
- Connect your wallet to UniSwap
- Confirm the transaction via your preferred wallet, and pay gas fees in ETH
- That’s a wrap! Wait until the transaction is confirmed on the blockchain!
Via your MetaMask Wallet
- Select “Ethereum Mainnet” on MetaMask
- Select wETH from the “Swap to” field
- Input the amount of ETH you want to swap, click “Review Swap”
- A window asking you to confirm the conversion will appear. Make sure that the conversion rate is 1:1, and then click “Swap”
How to unwrap wETH
In the steps outlined above, you can unwrap your ETH by the same conversion methods.
On OpenSea, you can use the same smart contract, but then click “Unwrap wETH” instead of “Wrap ETH”.
On both UniSwap and MetaMask, just select wETH as the token you want to exchange from, so you’d be swapping wETH to ETH.
What’s next for wrapped tokens?
Wrapped tokens allow for various new possibilities for transactions to be done on the blockchain, including new cross-chain atomic swaps. They also let blockchains to interact more with one another.
As more dApps and services are introduced on the blockchain, interoperability, or the ability to use a token on various platforms becomes a rising issue. Wrapped tokens solves this problem with its standards.
Other interoperability solutions are currently being explored – including bridge chains and updating blockchain codebases to be compatible with each other. With interoperability, more decentralisation can happen, as more currencies and tokens can be used throughout a blockchain’s entire ecosystem.
Some people view that wrapped tokens are just a temporary stage towards a more decentralised internet. Ethereum is also taking the same stance towards its wETH, where they’re planning on phasing it out once better network developments are available to take the place of wETH.