What are Wrapped Tokens and How do they work?

1 min read

What are Crypto Wrapped Tokens and How do they Work?

In the world of cryptocurrency, there are a lot of different terms and technologies that can be confusing for beginners. One such term is “wrapped tokens.” In this blog post, we’ll take a look at what wrapped tokens are and how they work.

What are Wrapped Tokens?
Wrapped tokens are digital assets that are backed by another asset. For example, a wrapped Bitcoin (WBTC) is a token that is backed by actual Bitcoins that are stored in a reserve. The advantage of using wrapped tokens is that they allow you to trade cryptocurrencies that you wouldn’t otherwise be able to trade.

For example, let’s say you want to trade Ethereum for Litecoin but there’s no direct way to do so. However, if you have WBTC, you can trade your WBTC for ETH and then trade your ETH for LTC. In this way, wrapped tokens act as a bridge between different cryptocurrencies.

How Do They Work?
Wrapped tokens are created when someone deposits the underlying asset into a smart contract. That smart contract then issues an equal amount of the wrapped token to the person who deposited the asset. When someone wants to redeem their wrapped token for the underlying asset, they simply have to send the wrapped token back to the smart contract. The smart contract will then send the underlying asset back to the person who redeemed the token.

Wrapped tokens provide a convenient way to trade cryptocurrencies that would otherwise be difficult or impossible to trade directly. If you’re interested in getting started with wrapped tokens, be sure to do your research and only use reputable exchanges and wallets.

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