Wrapped Ether (WETH) is essentially a version of Ether (ETH) but differs in numerous ways. WETH can be used on various platforms and decentralized applications (DApps) that support the ERC-20 token standard. WETH is pegged to ETH at a 1:1 ratio and can easily get converted. This leads to better interoperability on the Ethereum blockchain.
ETH can be wrapped manually by interacting with the WETH smart contract. WETH can also be created using decentralized exchanges (DEXs) such as Uniswap.
This guide will cover everything you need to know about Wrapped Ethereum (WETH).
What are wrapped tokens?
A cryptocurrency that's built on top of one blockchain network to be used on a different blockchain needs to be wrapped. Each token, or coin, is also built on specific standards.
Decentralized Finance (DeFi) use cases and DApps support specific standards. If the coin or token in question isn't supported by the blockchain, it needs to be wrapped.
Wrapped tokens make it a possibility to get a much higher level of utility for specific coins or tokens. Wrapped tokens solve incompatibility issues, and are supported by crypto wallets.
The procedure of wrapping a token is to swap one token for another token in an equal amount. This typically occurs through the usage of a smart contract or code on the blockchain, which can store or send funds.
Both tokens represent the same value. However, the Wrapped WETH version gets a higher level of compatibility. Wrapped tokens can be bought directly, or a merchant can convert their existing cryptocurrency and wrap it. The merchant, in this case, would send the person's crypto to a custodian.
The custodian would lock up the coin or token in a vault. Once the coin is locked, the custodian can create a wrapped token.
The wrapped token will represent the original coin, and this is a process known as minting.
What Is Wrapped Ethereum (WETH)?
Wrapped Ethereum (WETH) is essentially an ERC-20 token standard-compliant cryptocurrency that's pegged to the value of Ether (ETH). Ethereum’s native token, ETH, is used for paying gas fees on the network.
Wrapped Ethereum WETH can't be used for the payment of gas fees on the Ethereum network. WETH however, has a wider range of use cases when compared to ETH, specifically within the field of Decentralized Finance (DeFi).
Any cryptocurrency wallet that supports the ERC-20 token standard supports WETH.
Not every token built on Ethereum is alike. The network lets developers create new rules and standards for cryptocurrencies. There's the ERC-721 format, for example, that enables non-fungible tokens (NFTs) to operate on top of Ethereum. These are different when compared to ERC-20 tokens.
The majority of crypto wallets support ERC-20.
Most Decentralized Finance (DeFi) applications accept ERC-20 tokens for investment, staking, adding liquidity, borrowing, or lending, alongside other functionalities.
If we want to, for example, add Ether (ETH) to a liquidity pool and use it as collateral, it's better to have an ERC-20 version of the coin. In other terms, on Ethereum, almost all fungible tokens follow ERC-20. The standard was created to have a standardized set of rules for tokens. The aim is to simplify the new token launches and make them comparable to each other.
There are mandatory rules that all ERC-20 tokens follow, such as totalSupply, balanceOf, transfer, transferFrom, approve, and allowance.
Ether by itself doesn't comply with this token standard.
WETH is built to increase interoperability between blockchains and make Ether usable in dApps.
Advantages of Wrapped Ethereum (WETH)
Curious about what Wrapped Ether is, and what are some of its advantages? Let’s go over that now.
Ethereum (WETH) has numerous advantages, including:
WETH is an ERC-20-compliant token and follows all of the pre-specified rules.
Wrapping Ether enables the direct and seamless exchange between Ether and ERC-20 tokens.
WETH solves the issue surrounding interoperability and enables the easy exchange of tokens.
WETH can be used in any supporting DeFi service or DApp that supports the token standard on Ethereum.
WETH is pegged 1:1 to the value of ETH.
Disadvantages of Wrapped Ethereum (WETH)
Ethereum (WETH) has numerous disadvantages as well, including:
Custodians are required for the procedure of wrapping or unwrapping WETH.
If any issues occur with the operations of the custodian, they can affect the minting or burning procedure.
The reliance on custodians can lead to a higher level of centralization.
ETH vs WETH
Some traders find themselves confused about ETH and WETH. But let's "unwrap" the distinctions between these two tokens and explore the decentralized possibilities.
ETH (Ethereum)
Ethereum, the blockchain platform, has its native token known as ETH. This digital currency serves as the lifeblood of the Ethereum network, enabling users to conduct transactions and pay gas fees. However, while ETH is a fundamental component of Ethereum, it has certain limitations regarding DeFi applications.
ETH is the native token used for transactions and gas fees on the Ethereum blockchain
Traders must exchange ETH to complete transactions on the Ethereum network
ETH isn't ERC-20 compliant, which can restrict its seamless integration with some DeFi applications
WETH (Wrapped ETH)
Enter Wrapped Ether, or WETH, the enchanting counterpart to ETH in the DeFi realm. WETH acts as a container, embracing the original ETH tokens and wrapping them in an ERC-20 compliant standard. This transformative process breathes new life into ETH, making it compatible with many DeFi apps.
WETH serves as a container, wrapping and embracing the original ETH tokens
Wrapped in an ERC-20 compliant standard, WETH becomes seamlessly usable in various DeFi applications
WETH was created to enable ETH's use in decentralized exchanges (DEXs) and various DeFi applications
ERC-20 Standard
The ERC-20 standard plays a pivotal role in differentiating ETH from WETH. While ETH doesn't follow this standard, WETH wholeheartedly embraces it. This compliance empowers WETH to integrate with other ERC-20 tokens, fostering interoperability in the DeFi space.
ETH isn't ERC-20 compliant, whereas WETH adheres to this standardized token format
The ERC-20 standardization enables seamless integration of WETH with other ERC-20 tokens, promoting interoperability
Value equivalence
One might wonder if wrapping ETH into WETH alters its inherent value. Fear not — the enchantment of WETH doesn't tamper with the worth of its underlying ETH. For every one ETH wrapped, one WETH emerges with an identical value, maintaining a 1:1 equivalence.
Wrapping ETH into WETH doesn't affect its original value. 1 ETH remains equivalent to 1 WETH
No loss or gain of value occurs during the wrapping process
Operational flexibility
WETH provides flexibility for its users, allowing them to quickly unwrap it and convert it back to ETH with a few clicks. This conversion is effortlessly facilitated through DEXs or DEX aggregators, making the process seamless and swift.
Users can quickly unwrap WETH and convert it back to ETH through DEXs or DEX aggregators
Facilitating DEXs
Thanks to WETH's ERC-20 compliance, DEXs can operate smoothly, enabling traders to swap different tokens seamlessly. These tokens often must be wrapped first, paving the way for frictionless exchanges on DEX platforms.
WETH's ERC-20 compliance supports the smooth functioning of DEXs
Wrapping tokens makes DEXs more efficient, allowing seamless exchanges between tokens
Token creation in DApps
The ERC-20 format of WETH empowers users to create their own tokens for their DApps, fostering a realm of innovation within the DeFi ecosystem.
WETH's ERC-20 format enables users to create custom tokens for their DeFi apps, fostering innovation
How to Wrap Ether (ETH)?
One of the most popular ways through which Ether is wrapped is through Uniswap. As such, in this guide, we'll be creating WETH using Uniswap.
To do so, all users need to do is visit Uniswap and then connect their wallet. Each user will also need to ensure that Ethereum is selected as the network.
Next, ETH needs to be selected in the top field, and then WETH needs to be selected in the bottom field.
Once a user clicks on the “Select a Token” section, they'll be able to type in “WETH” in the field.
Now, all that's left for a user to do is input the amount of ETH they want to convert. Next, click on the “Wrap” button.
All that's left for each user to do is confirm the transaction in their crypto wallet and also pay the gas fees.
After the user reviews the details of the transaction, they can click on “Confirm.”
How to Unwrap Ether (WETH)?
Now that we understand the basics of wrapping ETH, we can now go over how to unwrap WETH.
Navigate again to the Uniswap website, and connect with your wallet. Make sure the Ethereum network is selected.
Select the wallet icon on Uniswap, and connect your wallet.
Users will need to go to the “Swap” section and select WETH at the top and ETH at the bottom.
Now, users can type in the amount they need to unwrap and confirm it. Each user will need to confirm the operation on their wallet.
WETH will now turn into ETH and will be stored in the wallet directly.
The impact Wrapped Ethereum (WETH) has on the blockchain space
Wrapped Ethereum (WETH) is essentially the wrapped or packaged version of Ether (ETH) that lets each investor use it to interact with the Ethereum ecosystem of dApps. Its additional level of utility to holders is the main reason behind its existence.
WETH can be staked, used for yield farming, lent, and used for providing liquidity to a variety of liquidity pools. Unlike ETH, which doesn't conform to its own ERC-20 standard, WETH has a much higher level of interoperability.
FAQs
What is a WETH Coin?
WETH isn't a coin but a token. ETH is the coin, and the wrapped version of the coin becomes the WETH token. It's a token that follows the ERC-20 token standard. Due to this, it can be used for yield farming, lending, and used for providing liquidity to a variety of liquidity pools.
Are WETH and ETH the same?
WETH and ETH aren't the same. The former conforms to the ERC-20 token standard, while ETH doesn't conform to the ERC-20 token standard. WETH is pegged at a value of 1:1 to ETH. However, WETH can be used by DApps and in the DeFi ecosystem.
Which is better ETH or WETH?
Each cryptocurrency has its own pros as well as cons. WETH is better for usage in DeFi and DApps. However, ETH is a far more established cryptocurrency and is held by a lot more investors.
Is WETH Worth Anything?
WETH does indeed have a value associated with it. The token is pegged 1:1 to the value of ETH. This means that ETH and WETH have the same value, as they are connected in this regard.
What is Wrapped Ether used for?
ETH is wrapped into WETH for usage on different DApps or networks aside from Ethereum. WETH leads to an increase in liquidity, capital efficiency, and interoperability. It can be used for yield farming, lending, and providing liquidity to a variety of liquidity pools.
Can you convert Wrapped ETH to ETH?
You can convert Ether (ETH) to Wrapped Ethereum (WETH) or the other way around. This is typically done through a custodian or through decentralized exchanges (DEXs).
Is Wrapped ETH better?
There are indeed ways through which Wrapped Ethereum (WETH) is better than Ether (ETH). If you want to use ETH coins in a DApp or DeFi ecosystem, it needs to be wrapped. WETH is better in the sense that it enables enhanced functionality, compatibility, and interoperability.
