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The idea of Wrapped Tokens might be new even for crypto enthusiasts. For those of you, this article will provide all the necessary information for you to understand them. It might be a lengthy topic, but to put it in a nutshell, Wrapped Tokens are a new way for Bitcoin investors to earn a handsome amount of interest on the cryptocurrency they hold. And if we talk technically, Wrapped Tokens are the tokens whose value depends upon the underlying cryptocurrency.

The term wrapped is due to the fact that the original cryptocurrency is wrapped and put in the digital wallet. That digital wallet allows the wrapped version of that cryptocurrency to be created. Suppose the digital wallet makes the wrapped version of the stored Bitcoin. The value depends on that stored Bitcoin, but it runs on a separate Blockchain than the stored Bitcoin. That token is also a cryptocurrency, but its value is different depending upon which other cryptocurrency it is pegged to. Although both of them are Bitcoin, they don’t operate on Bitcoin Blockchain.

One might wonder that what is the purpose of creating a copy of the cryptocurrency that you hold? The Wrapped Tokens are in the custody of secure platforms like Binance Smart Chain or Ethereum Blockchain. And after they are converted into the ERC or BEP token, they hold the security of that network. But remember that Bitcoin, which exists on the Bitcoin Blockchain, has no connection with the Wrapped Bitcoin, which exists on the Ethereum Blockchain. However, if we talk about the relationship between the Wrapped Tokens, there are many bridges between Blockchains.

If you are an ordinary user in the world of cryptocurrency, you don’t have to worry about how to wrap or unwrap your cryptocurrency. You can consider that these Wrapped Tokens are your original cryptocurrency and trade them in a similar manner.

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Difference Between Stablecoins and Wrapped Tokens

Stablecoins also derive their value from other assets. In the case of Stablecoins, they usually derive their value from fiat currency. But the value of Wrapped Tokens depends on the asset which exists natively on another Blockchain. So the question arises that if Wrapped Tokens are similar to stablecoins?

Each Blockchain is a unique system, and it is hard to move any information between them. But with Wrapped Tokens, the compatibility between the blockchains increases, and as a result, the underlying assets can go cross-chain.

Wrapped Bitcoins

Wrapped Bitcoin was first introduced in January 2019. The reason for the launch of Wrapped Bitcoin was to bring the liquidity and possibilities of Bitcoin to the Ethereum network so that it can have the benefits of the ERC-20 token.

Bitcoins cannot be used to invest in decentralized finance (Defi) transactions. Still, the wrapped version of Bitcoins can easily become part of transactions made by decentralized finance or even any other Defi applications because of the reason that they run on the Ethereum network.

The Wrapped Bitcoins have brought along many opportunities for cryptocurrency lovers. Although the market value of wBTC is similar to Bitcoin, the functionalities and characteristics of Wrapped Bitcoin are enormous compared to Bitcoin. In addition to this, Wrapped Bitcoins can be used in plenty of use cases like decentralized finance.

Is Wrapped Bitcoin Better than Bitcoin?

It is a fact that the technology behind Bitcoin is becoming outdated. The money on the Bitcoin Blockchain can only be transferred in the form of Bitcoins. It does not support any other type of cryptocurrency. As a matter of fact, the Bitcoin Blockchain can only handle four transactions in one second, and their average confirmation time is 10 minutes. So we can say that the Bitcoin network is relatively slow and inefficient. But with the invention of WBTC and BTCB, things started to change.

Tokenized Bitcoin is called WBTC, and it holds the one-to-one peg value of Bitcoin. Bitcoin BEP-2 is called BTCB. They both are Bitcoins, but they don’t exist on Bitcoin Blockchain; instead, they are Ethereum (ERC-20) tokens and operate on Ethereum or Binance chains.

Take the example of WBTC, and if a person has money in that token, he can invest them into any decentralized finance platform like Aave via smart contracts. It will allow that person to connect to their wallet, deposit cryptocurrency, and take loans.

The customers who have lent money to the decentralized platforms through smart contracts can receive up to 4% interest per year at a fixed amount of interest rate. At the same time, the crypto of borrowers is pledged as collateral, which goes to the person who lent the token, if that default. Apart from this, for Bitcoin holders who need money but do not want to sell their Bitcoin can take a mortgage on their WBTC and take a loan in the form of stablecoins. The value of those stablecoins depends on the U.S dollar or any other fiat currency.

Working of Wrapped Tokens

To understand the working scenario of Wrapped Tokens, take an example of a tokenized version of Bitcoin or Ethereum, WBTC. As already mentioned, an example of wrapped bitcoin tokens is an ERC-20 token, and for this reason, Bitcoins can be efficiently used on Ethereum Network.

For the transactions of Wrapped Tokens, a custodian is required. Custodian is an entity that has an equal amount of assets as the wrapped amount. The custodian can be anyone, e.g. a merchant, a DAO, a multisig wallet or a smart contract. In the case of one WBTC, the custodian needs to hold one BTC. Prove that the custodian has assets equal to the amount of WBTC that has been sent, are available on the chain.

But the question is that how does the process of wrapping happen? The merchant will send the BTC to the custodian to mint. The custodian will then mint WBTC on the Ethereum Blockchain, depending on the amount of BTC that the merchant has sent.

And for the process of converting wrapped Bitcoin tokens into Bitcoin tokens, the merchant will send a burn request to the custodian, and the BTC is released from the reserve. That will be called unwrapping of BTC. The custodian is responsible for wrapping and unwrapping BTC. In the case of WBTC, the DAO is responsible for the removal and addition of custodians and merchants.

The DAO (Decentralized Autonomous Organization) consists of 17 members of Defi space that have a contract to remove or add Wrapped Bitcoins custodians and merchants.

When the merchants send actual Bitcoins to the custodian existing on the Bitcoin Blockchain, the custodian will then mint the equal amount of Bitcoin tokens on Ethereum.

Wrapped Tokens on Ethereum

Wrapped Tokens on Ethereum are tokens from cryptocurrencies operating on other blockchains compliant with the ERC-20 standards. That means that the assets not native to Ethereum can be operated on Ethereum. The wrapping and unwrapping of tokens on Ethereum cost quite much.

An example of Wrapped Tokens on Ethereum is wrapped Ether (WETH). Ether is a cryptocurrency used as payment for transactions on the Ethereum network. And ERC-20 is a standard form of tokens made on the Ethereum network. For example, OmiseGO (OMG) and Basic Attention Token (BAT) are Ethereum tokens.

But the ETH was designed before the ERC-20 standards, and it does not comply with its standards. That can be problematic because many decentralized applications require the conversion between ERC-20 tokens and Ether. For this reason, Wrapped Ether (WETH) was created, as it complies with ERC-20 standards. You can say that WETH is the tokenized form of Ethereum.

Wrapped Tokens on Binance Smart Chains (BSC)

Just like Wrapped Tokens of Bitcoin and other cryptocurrencies can be held on the Ethereum network, they can be wrapped for use on Binance Smart Chains. The crypto assets are wrapped by the Binance Bridge to be used on Binance smart chains in the form of BEP-20 tokens. After you bring your assets to BSC, they can be used in numerous applications that will help you in increasing your assets.

The wrapping and unwrapping of assets can cost money but, the conversion cost on Binance Smart Chain is relatively less than other blockchains.

How to Create WBTC through pBTC?

The fastest method of creating WBTC through pBTC is by the pBTC of pNetwork.

The first step in this regard is depositing your Bitcoin for getting the 1: 1 pegged tokenized version of it on the host Blockchain that you want to use. pNetwork supports Bitcoin bridges for plenty of networks like Ethereum and Ethereum layer two, e.g. Arbitrum, polygon and EOS.

This can be done by using decentralized applications of Wrapped Tokens. After you get your pBTC, there are multiple methods of getting WBTC by directly swapping pBTC for it. it can be done on:

If you are not new in the cryptocurrency world, maybe you already tried to move your WBTC on the Ethereum blockchain. Still, you couldn’t succeed because the Bitcoin and Ethereum blockchain were created separately and at two distinct times and have other characteristics. Doing that is not possible without the help of support bridges like pNetwork makes.

As already mentioned, the Bitcoin Blockchain is completely separate from the processes of Ethereum network. Some connecting networks like pNetwork is compulsory for making cross-chain possible. However, if the wrapped tokens belong to you, it can interact with different blockchains, making connections and benefiting from other blockchains’ characteristics.

Another reason for creating Wrapped Tokens is effectively entering into a decentralized finance ecosystem. Doing so will give you the opportunity of using Wrapped Tokens in yield cultivation, staking, taking loans and many other applications.

The majority of the decentralized finance applications are present on Ethereum blockchains, but they are also expanding to other networks.

Three Advantages of Using Wrapped Tokens

Although Wrapped Tokens comes with plenty of opportunities and advantages, some primary benefits of them are given below.

  • The tokens which are not native to a Blockchain can run and benefit from that Blockchain. Even in the case that some Blockchain has specific standards for their tokens like Ethereum’s ERC-20 or Binance Smart Chain’s BEP-20, other networks cannot use these standards. Wrapped Tokens give the opportunity of using foreign tokens on plenty of different networks who support the smart contracts.
  • Wrapped Tokens could increase the liquidity and usage of resources on many decentralized exchange platforms. The assets which are not used, from a specific Blockchain can be wrapped and be used on another Blockchain. This option helps in linking the liquidity of previously isolated Blockchain.
  • The transaction of assets on the Bitcoin Blockchain can be slow and cost a lot of money in many cases. But the Wrapped Tokens on pNetwork have high transactional speed and affordable rates, especially when they are transferred by using layer two networks like Arbitrum and Polygon.

Is Investing in the Wrapped Tokens a Good Idea?

Decentralized finance plays a crucial role in the cryptocurrency world. According to many experts, investing in Wrapped Tokens is a good idea. As proof, take a look at the fact that almost 800 million dollars worth of Bitcoin was transformed into Bitcoin tokens in just one year. This gives you an estimation of the increasing popularity of Wrapped Tokens.

According to research conducted by Arcane Research centre, the number of Bitcoin tokens that exist on the Ethereum Blockchain has increased to the amount of 189,000 Bitcoins in 2021. That means that a record 1% of the 18.73 BTC that is the current circulating amount of Bitcoin is invested in decentralized finance in the form of Wrapped Bitcoin Tokens.

Investing in Wrapped Tokens will also increase the capital efficiency and liquidity of both decentralized and centralized exchanges because it has the option of moving the funds across multiple networks that would otherwise remain isolated.

Are Wrapped Tokens Safe?

In technical terms, the wrapped BTC are safe because they belong to reliable platforms like Binance Smart Chains or Ethereum. And once they are converted into the standard tokens of that network, they hold the security protocols of these Blockchains.

Although they have a drawback, that the Wrapped Tokens should have complete trust in the custodian that holds the assets. If the custodian is untrustworthy and unlocks and releases the Bitcoin assets to some other entity, the Bitcoin token holders will be left with nothing.

The security level of Wrapped Tokens is determined by how the custodian holds them. For example, a central custodian bridge is an organization that keeps bitcoins. Its primary purpose is to mint ERC-20 tokens on Ethereum. The customers have to completely trust that the organization will safely keep their Bitcoin assets and not send them to someone else. A good way of checking the reliability of these organizations is to make sure that they offer some kind of insurance or guarantee if things go south.

To avoid the involvement of any third party, a Decentralized smart-contract-managed bridge is an excellent option in the world of decentralized cryptocurrency. In such a case, the customers only have faith in the code of immutable time-stamped smart contracts.

Wrapped Tokens make it possible to earn money from your Bitcoin holdings, which was not possible before. In addition, the holders of Wrapped Tokens can benefit if the market price of Bitcoin increases because both WBTC and BTCB are directly pegged to Bitcoin. Also, the customers can reinvest the interest back into the financial services, which will lead to more profit gain.

There are numerous tools like WBTC savings accounts, in which if you deposit your money, they will offer you higher interest rates than any other major banks out there.

To sum it up, Wrapped Tokens are like a cherry on the top for the cryptocurrency market already flourishing rapidly. If you are a Bitcoin holder, you should consider swapping your Bitcoin assets for WBTC or BTCB. Do not waste this opportunity of earning extra cash on your already existing Bitcoin assets.

Limitations of Wrapped Tokens

In the majority of the ways the Wrapped Tokens are currently used, the users have to trust the custodians who are holding the funds entirely. It can be challenging in many scenarios because trusting someone in the digital world is complex. But without the custodian, the Wrapped Tokens cannot be used for actual cross-chain transactions because the current technology does not have any solution for that.

However, in the future, some decentralized applications would be available through which completely trustless Wrapped Tokens minting, and redemption would be possible because there will be no third party involved.


Wrapped Tokens are an excellent way of creating more bridges between different blockchains. These bridges are used for moving assets that are native to other blockchains which help increase the ability of different Blockchains to exchange and make use of information. Wrapped Tokens open the doors to a whole new world where the interest rate is higher than ever, and different applications can share liquidity with each other.

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Larry Wright

By Larry Wright

Larry Wright is a Pulitzer Prize-winning journalist and author. He is known for his insightful reporting and his ability to delve into complex issues with clarity and precision. His writing has been widely acclaimed for its depth and intelligence.