Term
Wrapped token
A wrapped token is a representation of one blockchain's asset on a different blockchain — wBTC is Bitcoin represented as an ERC-20 on Ethereum, backed 1:1 by real BTC held in custody by the wrapping service.
A wrapped token is an on-chain IOU that represents an asset from another chain. The most famous is Wrapped Bitcoin (wBTC): an ERC-20 token on Ethereum, each unit of which is backed 1:1 by real BTC held in custody by a designated custodian. Wrapping lets Ethereum users bring Bitcoin liquidity into Ethereum DeFi.
The mechanic is simple: to mint wBTC, a merchant sends BTC to the custodian, the custodian mints an equal amount of wBTC on Ethereum. To redeem, the reverse. The trust assumption is that the custodian actually holds the underlying — if they don't, the wrapped token loses its peg.
The alternative to wrapping is native swap routing: if you want ETH but hold BTC, you can swap directly across chains through a non-custodial aggregator like SwapZilla, without ever holding a wrapped IOU. Wrapping makes sense only when you specifically need the "same" asset on a different chain — otherwise, a swap is usually cleaner.
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