A token pegged to another asset, allowing it to be used on different blockchain networks.
A Wrapped Token is a cryptocurrency that represents another asset on a different blockchain. Wrapped tokens maintain a 1:1 peg with the original asset, allowing it to be used in ecosystems that are otherwise incompatible.
For example, Wrapped Bitcoin (WBTC) lets BTC holders use their assets on Ethereum-based DeFi platforms.
How Wrapped Tokens Work
The original asset is locked in custody (smart contract or trusted custodian)
A wrapped version is minted on another blockchain
The wrapped token can be traded, staked, or used in DeFi
When redeemed, the wrapped token is burned
The original asset is unlocked and returned
This process ensures the wrapped version remains fully backed.
Why Wrapped Tokens Are Important
Enable cross-chain functionality
Increase liquidity across ecosystems
Allow assets like BTC to interact with DeFi
Improve capital efficiency
Support interoperability between L1s and L2s
Wrapped tokens bridge previously isolated blockchains.
Common Wrapped Assets
Wrapped Bitcoin (WBTC)
Wrapped Ether (WETH)
Wrapped stablecoins on sidechains
Wrapped tokens on L2 networks (Arbitrum, Optimism)
Summary
A wrapped token is a blockchain-compatible version of another asset, pegged 1:1 and used to enable cross-chain interoperability and DeFi participation.
