Knowing the wrapped ether definition is important for every crypto enthusiast dealing with the world’s second-largest blockchain, Ethereum. Read on to find out what this term means!
What Is Wrapped Ether?
The term “wrapped ether” (WETH) refers to the version of ether compatible with the ERC-20 standard.
What You Need To Know About Wrapped Ether
Ether is the native currency of the Ethereum network, while ERC-20 is a technical standard that enables tokens developed on Ethereum to interact with each other.
Due to the fact that ether was created before ERC-20 was introduced, ETH itself is not ERC-20 compatible. This means that it cannot be exchanged for other ERC-20 tokens without third-party mediation or the implementation of complex technical solutions.
While designing one interface specifically for ETH and creating a separate one within the same smart contract for ERC-20 tokens was an option, it would have led to unwanted complications. Instead, the developers invented wrapped ether, which allows to upgrade ETH to match the ERC-20 standard and conveniently handle assets within the same contract.
Wrapped ether can be created by sending ETH to a smart contract where it’s placed on hold. In turn, the user will receive the WETH ERC-20 token without any loss of value, which means that the exchange will be completed at a 1:1 ratio. If needed, wrapped ether can be sent back into the same smart contract to be “unwrapped” at the same rate.
All in all, using wrapped ether provides users with more opportunities for staking and investing across Ethereum’s large DeFi ecosystem. The most popular WETH use cases include:
- Trading NFTs
- Boosting liquidity in liquidity pools
- Crypto lending
Note that there are multiple versions of WETH – some even exist on other blockchains and are tailored to be used in their ecosystems.
