How to Wrap and Unwrap Ethereum (WETH) Best way to Explain
basically, Ether (or ETH) is the native token for the Ethereum blockchain. It is used, among other things, to pay transaction fees (i.e., gas fees) for transactions executed on the Ethereum blockchain.
However, ETH was built before the ERC-20 standard, and hence does not conform to that set of conditions.
In comes wrapped Ether (WETH), which is used to trade directly with other crypto tokens that meet the ERC-20 standard. Tokens that meet these standards are interoperable and can be used in transactions on the ERC-20 compliant blockchains.in the other word,WETH is the wrapped version of Ether. Wrapped tokens, like WETH or Wrapped Bitcoin, are tokenized versions of cryptocurrencies that are pegged to the value of the original coin and can be unwrapped at any point. Almost every major blockchain has a wrapped version of its native cryptocurrency like Wrapped BNB, Wrapped AVAX, or Wrapped Fantom. The mechanism of such coins is similar to that of stablecoins. Stablecoins are essentially “wrapped USD” in the sense that dollar-pegged stablecoins can be redeemed for FIAT dollars at any point. In a similar fashion, WBTC, WETH, and all other wrapped coins can be redeemed for the original asset at any time.
Wrapped coins solve a particular problem: because of the low interoperability of blockchains,
How Does Wrapped Ethereum Work?
It is important to remember that the ERC-20 standard for crypto tokens was created after the ETH token was created for the Ethereum blockchain. The Ethereum token is not in compliance with the ERC-20 standards, so it cannot be used with ERC-20 compliant tokens.
The process for changing ETH so that it would be in compliance with the ERC-20 tokens would be too costly and disruptive for the Ethereum blockchain. Thus, is better that ETH be converted into WETH and then used in ERC-20 compliant dApps, smart contracts and blockchains.
When you convert ETH into WETH, a smart contract mints a WETH token that is backed by the ETH token being submitted for the transaction. The private key for the ETH token is kept secure by the custodian that mints the WETH and guarantees that the WETH has the same value as its underlying ETH token.
Moreover, the smart contract structures the WETH so that it is in compliance with the ERC-20 standards and can be used with other ERC-20 compliant software and programs.
WETH can be used to pay gas fees, make payments, trade in decentralized exchanges (DEXes) and anything else that can be done with any accepted crypto tokens.
Moreover, WETH can be used like a native token on any ERC-20 compliant blockchains and DApps. That means that WETH holders pay fewer and lower transaction fees, plus have faster transactions than ETH holders. The reason being ETH holders have to swap their ETH for tokens that can be accepted by other blockchains and their related dApps.
Benefits of Using WETH
There are several advantages to using WETH.
It is interoperable with other ERC-20 crypto tokens. Since WETH can only be minted by a custodian, an entity that guarantees its value (e.g., smart contract, dApp, DAO), WETH has higher liquidity than native tokens.
Another benefit of using WETH is that it has enhanced security because its custodians generally only use secure exchanges. Plus, you have more control over your crypto tokens because the custodian keeps the private keys in a secure location.
Finally, WETH has faster transaction speeds and lower transaction fees relative to the unwrapped version of the token.
Disadvantage Of Using WETH
WETH has some disadvantages too. Custodians are required for the wrapping and unwrapping of ETH. So, if there are any problems with the custodian’s operations, those problems may affect the custodian’s minting and burning process.
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.
How Do You Convert Ethereum to Wrapped Ethereum?
If you have ETH, you can wrap it and get ETH by simply trading ETH to WETH.
Before that, you will need to have some ETH in a wallet, such as MetaMask.
Next, you will need to connect your wallet (in this case, MetaMask) to a DEX built on Ethereum, such as Uniswap.
Perform the following steps to convert your ETH to WETH:
On your Chrome browser, login to your MetaMask account and install the browser extension
- Go to https://app.uniswap.org/#/swap
- Connect your wallet
- Select ETH for the top asset and WETH for the bottom asset (pictured below)
- Select the amount of ETH you would like to wrap
- Click wrap
- A popup notification from MetaMask will appear, showing the estimated gas fees and total transaction amount
- Click confirm and voila, you will have WETH in your wallet in a bit
Another popular use case for WETH lately is on OpenSea, the largest secondary marketplace for non-fungible tokens (NFTs)
How Do You Unwrap WETH?
If you have WETH, you can unwrap it and get ETH. After unwrapping (a.k.a. burning) it, you get the original ETH back. The burned WETH is returned as ETH and deposited into the former WETH holder’s crypto wallet.
Just like wrapping ETH, you will need to have a wallet, like a Metamask account. Simply perform the same steps above but choose WETH as the first asset and ETH as the second asset.
About The Author
