What is a wrapped token? Guide into wrapped crypto

<p>Wrapped cryptocurrency was a natural progression in the rapidly evolving realm of decentralised finance (DeFi) and decentralised apps (DApps). Wrapped tokens make it possible to use cryptocurrencies such as bitcoin (BTC) on non-native blockchains such as Ethereum without requiring constant conversion, thus expanding the liquidity and user base of DeFi applications.</p> <p>As DeFi grows more prevalent and vital for online commercial operations, token wrapping has become critical for facilitating interactions between holders of multiple tokens.</p> <p>What are wrapped tokens, then? Wrapped cryptocurrencies, like stablecoins, have their value tethered to another asset. The crucial distinction is that wrapped crypto tokens are often linked to the value of another cryptocurrency, whereas stablecoins are typically anchored to a fiat currency, such as the US dollar, or a real object, such as gold.</p> <p>What are wrapped tokens and how do they work?</p> <p>From a technical sense, the process of minting wrapped crypto tokens and stablecoins is very similar.</p> <p>As previously stated, wrapped tokens are linked to the value of another cryptocurrency, and the wrapped token's value will fluctuate in lockstep with the value of the original cryptocurrency.</p> <p>After 'locking' the original crypto assets in a safe digital vault via the issuance of a smart contract (which is often a contract for a 1:1 exchange), the user is awarded an ERC-20 token equivalent to the original crypto assets (a standard used for creating and issuing smart contracts on the Ethereum blockchain).</p> <p>If the user wishes to reclaim their original asset, they just exchange their wrapped tokens back to the smart contract and exit with the original crypto's value.</p> <p>The first wrapped cryptocurrency was produced for ether, Ethereum's native currency, which was created prior to the ERC-20 standard's adoption. Due to the fact that ether was established prior to the ERC-20 standard, it was incompatible with other ERC-20 tokens. As a resul