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Wrapped Assets

A wrapped asset is a token representing another asset, often from a different chain, or, in ether's specific and important case, a native asset represented in a standard-compliant token form. This chapter covers the general wrapping mechanism before Wrapped Ether covers WETH specifically as the most important concrete example.

The general mechanism: lock and mint, burn and release

Wrapping generally follows the same locked-and-minted pattern already introduced for Sidechains: the original asset is locked (held by a custodian, a smart contract, or a federation of some kind, the specific mechanism determining the wrapped token's actual trust model), and an equivalent quantity of a new, standard-compliant token is minted elsewhere, representing a claim on the locked original. Redeeming (unwrapping) reverses this: burn the wrapped token, release the locked original.

Original asset (e.g. BTC, or ETH itself) ──► locked
                                                  │
                                                  ▼
                                     wrapped token minted
                                     (e.g. WBTC, an ERC-20)
                                                  │
                              ... trades, is used in DeFi, etc ...
                                                  │
                                                  ▼
                              wrapped token burned to unwrap
                                                  │
                                                  ▼
                              original asset released

Why wrap an asset at all

The motivating problem: many chains and standards can't natively interact with assets from outside their own ecosystem. Bitcoin has no native way to participate in an Ethereum-based lending protocol (see DeFi), because Bitcoin's UTXO model and Bitcoin Script have no concept of Ethereum's account model or ERC-20 interface at all. Wrapping bridges this gap by creating an ERC-20-compliant representation of the original asset's value, usable anywhere ERC-20 tokens are usable, without requiring the underlying protocol (Bitcoin, in this example) to change anything about itself.

WBTC: Bitcoin, wrapped for Ethereum

Wrapped Bitcoin (WBTC) is the most widely used Bitcoin-wrapping implementation: BTC is deposited with and held by a custodian (historically, primarily BitGo, operating alongside a DAO-based merchant/custodian governance structure), and an equivalent amount of WBTC (an ordinary ERC-20 token) is minted on Ethereum. This makes WBTC's trust model explicit and worth stating clearly, echoing the same peg-trust analysis from Sidechains: WBTC's value is only as reliable as the custodian's actual, ongoing honesty and solvency, a real, different trust assumption than holding BTC directly, not a technicality, and precisely the kind of custodial risk covered generally in Custodial vs Non-Custodial Wallets.

Common misconceptions

A wrapped token is not the same asset as the original, even when priced and traded as if fungible with it. WBTC and BTC are two distinct assets on two distinct ledgers, connected only by the custodian's promise (and, ideally, transparently auditable proof of reserves) to honor the peg, a documented, real distinction that matters specifically during any crisis of confidence in the custodian, when a wrapped token's market price can and has diverged from the underlying asset's price.

Wrapping does not require the original asset's own protocol to support or even be aware of the wrapping. Bitcoin's protocol has no concept of WBTC and requires no changes to accommodate it; the entire wrapping mechanism exists on the destination chain and in the custodian arrangement, entirely external to Bitcoin's own consensus rules.

Further reading

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