Definition
Wrapped tokens enable cross-chain interoperability by creating a tokenized version of one blockchain's asset on another chain. WBTC (Wrapped Bitcoin) represents BTC on Ethereum, allowing Bitcoin to be used in Ethereum DeFi. The wrapped token is backed 1:1 by the original asset held in custody. This bridge between blockchains expands DeFi access but introduces custodian/bridge risk.
lightbulb Example
An investor wraps 1 BTC into WBTC to use in Ethereum DeFi: deposit WBTC as collateral on Aave to borrow stablecoins, then provide liquidity on Uniswap. The underlying BTC is held by a custodian (BitGo) backing the WBTC 1:1.
verified_user Key Points
- Tokenized representation of cross-chain assets
- WBTC: Bitcoin on Ethereum
- Backed 1:1 by custodied original asset
- Enables cross-chain DeFi participation