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A wrapped token is a "copy" of a crypto asset issued in a 1:1 ratio.
For example, WBTC, WETH, WMatic, WAVAX and many other tokens.
Wrapped assets can be divided into two categories:
Wrapped on its own blockchain.
Any ether-like network: Arbitrum, Optimism, Avax, Matic and other networks, has a certain token standard - ERC20. In order for assets to be interacted with in DeFi, they must comply with the same standard. Therefore, they are wrapped in a token. The fact is that regular ETH is a network coin, and WETH is a token that can be moved between other networks. So, when exchanging ETH for USDC, a decentralized exchange will automatically: wrap ETH in WETH, and then exchange it for USDC
Transferred from another blockchain.
Why can't BTC be sent directly from the Bitcoin network to the Ethereum network? Because Bitcoin and Ethereum are completely different, incompatible networks. They work differently, they have different architectures and different addresses.
How then do you use BTC in Ethereum-like networks?
There are several ways to transfer BTC:
wBTC — Using a custodian.
Custodians are large companies that store the BTC received from the native network. Then, through a smart contract, they issue wrapped tokens on the Ethereum blockchain in an amount of 1:1. However, there is always a risk of loss: hacking, fraud, bankruptcy of the company. After losing the collateral, it will be almost impossible to return your native bitcoins with a 1:1 peg.
WBTC is one of the most reliable custodians.
But only large exchanges and projects can issue WBTC. An ordinary user cannot issue WBTC on their own.
On the Solana blockchain, the custodian was Alameda Research. After its bankruptcy in 2021, the soBTC token deviated from the real Bitcoin rate and traded at $4,000. It has not recovered to this day.
The scheme for receiving tokens through a custodian looks like this:
BTC —> Custodian —> Smart contract —> WBTC
BTC.b is a wrapped bitcoin on the Avalanche blockchain.
BTC.b does not have a custodian, instead it has a storage facility — Multi-Sig Vault (a wallet with a multi-signature).
There are 8 companies that have a part of the private key for signing a transaction from the storage facility. To sign a transaction, 6 out of 8 campaigns must agree. After signing, the smart contract automatically issues BTC.b to the user's wallet.
The scheme for receiving tokens through the storage looks like this:
BTC —> Multi-Sig Vault —> Smart contract —> BTC.b
There is also tBTC on the Ethereum blockchain, which is issued in a similar way to BTC.b. Personally, I work with BTC.b. This eliminates trust in third parties and increases autonomy.
For example, WBTC, WETH, WMatic, WAVAX and many other tokens.
Wrapped assets can be divided into two categories:
Wrapped on its own blockchain.Any ether-like network: Arbitrum, Optimism, Avax, Matic and other networks, has a certain token standard - ERC20. In order for assets to be interacted with in DeFi, they must comply with the same standard. Therefore, they are wrapped in a token. The fact is that regular ETH is a network coin, and WETH is a token that can be moved between other networks. So, when exchanging ETH for USDC, a decentralized exchange will automatically: wrap ETH in WETH, and then exchange it for USDC
Transferred from another blockchain.Why can't BTC be sent directly from the Bitcoin network to the Ethereum network? Because Bitcoin and Ethereum are completely different, incompatible networks. They work differently, they have different architectures and different addresses.
How then do you use BTC in Ethereum-like networks?
There are several ways to transfer BTC:
wBTC — Using a custodian.Custodians are large companies that store the BTC received from the native network. Then, through a smart contract, they issue wrapped tokens on the Ethereum blockchain in an amount of 1:1. However, there is always a risk of loss: hacking, fraud, bankruptcy of the company. After losing the collateral, it will be almost impossible to return your native bitcoins with a 1:1 peg.
WBTC is one of the most reliable custodians.
But only large exchanges and projects can issue WBTC. An ordinary user cannot issue WBTC on their own.
On the Solana blockchain, the custodian was Alameda Research. After its bankruptcy in 2021, the soBTC token deviated from the real Bitcoin rate and traded at $4,000. It has not recovered to this day.
The scheme for receiving tokens through a custodian looks like this:
BTC —> Custodian —> Smart contract —> WBTC
BTC.b is a wrapped bitcoin on the Avalanche blockchain.BTC.b does not have a custodian, instead it has a storage facility — Multi-Sig Vault (a wallet with a multi-signature).
There are 8 companies that have a part of the private key for signing a transaction from the storage facility. To sign a transaction, 6 out of 8 campaigns must agree. After signing, the smart contract automatically issues BTC.b to the user's wallet.
The scheme for receiving tokens through the storage looks like this:
BTC —> Multi-Sig Vault —> Smart contract —> BTC.b
There is also tBTC on the Ethereum blockchain, which is issued in a similar way to BTC.b. Personally, I work with BTC.b. This eliminates trust in third parties and increases autonomy.