USDC (USD Coin) is one of the most popular stablecoins out there. Here are some things you need to know about what it is and how it works. Users typically get around this by using wETH on Polygon, which is a Layer-2 blockchain solution built on top of Ethereum. This allows the users to perform the same operations with their ETH as they would on the Ethereum blockchain but at the fraction of the cost and blazing fast speeds of over 1,000 TPS. WETH is required by some DeFi protocols in order to function properly. We’ll get into more detail on this later, but essentially some protocols require you to have ERC-20 tokens in order to interact with them.
- Since most blockchains are silos in themselves, they do not offer fluid interoperability or the ability to transfer native tokens from one blockchain to another.
- Sending WETH is the same as sending any other cryptocurrency between different wallets.
- Having the ability to port over native assets from one network to the other is certainly helpful when users don’t want to sell their assets to buy separate ones.
- The content of this article (the “Article”) is provided for general informational purposes only.
The native token of the Ethereum blockchain—Ether—is used to pay for the operation of these dApps and smart contracts on the blockchain. For example, wrapped Bitcoin (wBTC) is a synthetic token with the same market price as Bitcoin (BTC). The only difference between wBTC and BTC is that the former is available on blockchains outside the Bitcoin network.
What Is the Difference Between ETH and Wrapped ETH (WETH)?
But why would we ever need a wrapped version of Ethereum to use on Ethereum’s blockchain? In this article, we’ll explore what necessitated the creation of WETH. Just enter the amount of ETH or wETH you wish to purchase and follow the steps to complete your order. Kyber Network is a decentralized platform that pools liquidity from multiple sources to provide the end user with the best rates. The transaction fee on the Ethereum network can be quite high, especially during periods of high traffic.
Interestingly, it’s most popular to use wETH tokens within Ethereum’s ecosystem. For context, smart contracts are blockchain programs that automatically execute their preprogrammed commands and are an essential feature in dApp design. WETH solves this issue by creating an ERC-20 token version of ETH for use on dApps in the Ethereum ecosystem. With hundreds of protocols holding billions of dollars in cryptocurrencies, Ethereum is an unavoidable force in the growing decentralized finance (DeFi) space. Many crypto traders use Ethereum’s DeFi platforms like dYdX, Curve Finance, and Aave to exchange, borrow, and lend digital assets throughout the crypto ecosystem.
This makes WETH a necessity, as many ETH holders want to use their ETH in DeFi projects. If you decide to start experimenting with WETH, we recommend buying it with ETH or other tokens, as it’s simpler and more convenient how to buy kin coin than interacting with the wrapping smart contracts. One example would be the ERC-721 format that gives us Non-Fungible Tokens (NFTs). Developers have a lot of room for customization when creating these digital assets.
Step 1: Connect Your Wallet
To use that on Ethereum, they would first need to sell their BTC for USDT to be able to use it. Once they have USDT, they can easily use it to participate in any dApp of their choosing. Aave is a decentralized lending platform that allows users to lend and borrow a variety of cryptocurrencies. The price of cryptocurrency exchange comparison wETH is backed by the actual ETH that is locked up in the smart contract in a one-to-one ratio. This means that the supply of wETH will always be less than or equal to the amount of ETH locked in the contract. As ETH does not conform to the ERC-20 standard, it cannot be used directly with these protocols.
Cons of Using WETH
ETH and WETH trade 1-to-1 and ETH can be converted to WETH and back again—or “wrapped,” in the jargon of Ethereum—at any time. Besides transaction fees, there are no additional costs involved. A cryptocurrency bridge can be thought of as an intermediary that allows two different blockchain networks to communicate with each other. This communication allows for the exchange of assets between the two networks, which can be useful for users who want to take advantage of both platforms. Smart contracts are the core of the dApps that run decentralized finance (DeFi) on the Ethereum blockchain.
Therefore, ETH in its original form doesn’t follow the ERC-20 rules, limiting its use cases. However, since ETH doesn’t abide by the ERC-20 rules, you can’t directly use it to bid for items when interacting with Ethereum DApps. You can wrap your ETH manually by interacting increasing presence of high frequency trading in crypto with the WETH smart contract, which will store your ETH and give you back the exact same amount of WETH. Note that the Coinbase wallet supports the Ethereum network and «all ERC-20» tokens, which means that you will be able to easily add your WETH to the wallet.
Ethereum users convert ETH into WETH via a process known as wrapping. While Ether usually runs dApps and smart contracts on Ethereum, it doesn’t always integrate seamlessly with every single, smart contract or dApp. You could also begin lending out your WETH on a platform like Aave. Other users can borrow your tokens but must first provide collateral covering their loan.
There are many versions of WETH, but some are more popular than others. You can even find wrapped ETH on other blockchains to use in their ecosystems. Popular uses for WETH include NFTs trading, providing liquidity to liquidity pools, and crypto lending. In a nutshell, there is no difference between ETH and WETH because the latter is simply a «wrapped» version of the former. For cryptocurrencies, a «wrapped» token is nothing but an empty vessel that contains the original asset. The process of wrapping helps use a non-native asset on any blockchain.
For example, you can lock your WETH tokens in a liquidity pool provided by DEX platforms like Uniswap. As an LP, you will be eligible to earn a certain percentage of fees from traders who exchange tokens using the pool. While bridging tokens is a good wrapping option, moving crypto from one chain to another is risky. There are reported instances where some bridges had their protocols exploited.
This provides the most compatibility across the blockchain and saves time developing new smart contracts. WETH is an ERC-20 token on Ethereum pegged to the price of Ether (ETH). While Ethereum’s native token, ETH, can be used to pay gas fees, WETH can’t.
Similarly, ETH is a coin because it runs on its native chain, the Ethereum blockchain. In addition, the reliance on a custodian to mint and burn tokens leads to centralization. This centralization can be problematic and contradicts the point of a decentralized currency. For example, there could be US$3 billion of WETH on the Ethereum blockchain, but it could all be held/controlled by one company.
This means you can’t directly use it to bid for items when interacting with Ethereum dApps. WETH (wrapped ETH) is the grease for this friction, as it follows the ERC-20 token standards unlike ETH. This is exactly how the 1-to-1 peg between ETH and WETH is maintained. There’s nothing to pull the redemption price away from 1-to-1 since it’s predefined in the code that governs the smart contract. Ethereum is often described as a distributed computing platform. To understand WETH, you need to grasp how the Ethereum blockchain and smart contracts work.
A dollar stablecoin like USD Coin (USDC) is pegged 1-to-1 to the U.S. dollar, similarly to how WETH is pegged to ETH. Just note that the technical differences under the hood are very different (more on that later). If you click [Select a token], you should see WETH above the list.
After you sign up for a Metamask account, you can fund it with fiat currency, cryptocurrency, or a debit/credit card. In order to do this, you must complete one transaction between your OpenSea and Metamask accounts. Once the unwrapping process is complete, you will be able to see your ETH tokens in the wallet section of your OpenSea account. On the contrary, there are no alternative reserves with the wrapping process since you must use the native token as your underlying asset. This means developers could integrate other tokens into their projects by simply calling functions in the contracts.
