UNDERSTANDING WRAPPED TOKEN | 10% beneficiary to tron-fan-club
I will like to use this analogy to explain what a wrapped token is. For instance, astronauts are in space, and the spaceship is experiencing some malfunction. One of the astronauts will volunteers to fix the ship. So, the astronaut will have to put on the space suit in other to survive in the vacuum of space. This analogy explains exactly what a wrapped token is. In a simple explanation, a wrapped token wraps itself to survive in a new environment.
In a simple explanation, a wrapped token wraps itself to survive in a new environment. In other words, it is a token in disguise in another blockchain. It is important you know that each blockchain has it on the coin but developers can use that blockchain to create a token.
For instance, if you want to deposit your BTC into a decentralized application that only runs the Ethereum blockchain and that means you can't use your Bitcoin in that application. What you will do is wrap that Bitcoin and change it to a token on the Ethereum blockchain and call it wBTC. In other words, you can lock up your Bitcoin in that coin application and get a wrap Bitcoin (wBTC). The wrap Bitcoin is just a representative of Bitcoin.
Wrapped tokens can also be used as collateral. It is just like using your house as a value to borrow from the bank. The bank will lend you money because you have something valuable to repay the loan, a wrapped token is very similar to this. A wrapped token is just like a stablecoin because the price of a wrapped token is pegged to the price of an ordinary token. That means 1 wETH will always equal 1 ETH and 1 wBTC will always equal 1 BTC. You can change the wrapped Bitcoin to a real Bitcoin at any time.
One of the benefits is that can use an asset that has a slow transaction speed like BTC, you can convert it into wrapped Bitcoin and uses it on another faster blockchain for your transaction.
To solve the problem of people trying to double their original coin with the wrapped token. The developers created something called the custodian and what the custodian does is verify if someone has a coin he claims to have. The process is done through codes. You have 1 BTC to create 1 wBTC. You can convert a wrapped token into its original asset. A wrapped coin can never be more than a real asset because you can only receive a wrapped token based on the amount of coin you have.
More people are using a wrapped token every day as the demand to use decentralized application grow. As more people are getting on board into the DeFi, the demand to use wrapped tokens will increase.
A company like REN has developed a protocol that allows investors to create a wrapped token on the Ethereum blockchain. We can not underrate the problem that wrapped tokens solve when it comes to allowing investors to create a token that can let them invest in the decentralized application and move from one blockchain to another.
https://twitter.com/olaspecial17/status/1546822068964139010?s=20&t=UWWODAA4nuJU7D4mCQAq4g
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@ozenozge thanks for your support.
You always discuss very important topics. I see a lot of posts all the time and I like it very much
I am glad you like it.
very good explanation and also very interesting for us to understand
I explained it in a simple way.
This is my first time to hear about wrap token
Thanks for impacting knowledge on me and others that read through