What is a Wrapped Coin?

Wrapped coins

First of all, you should know we are not talking about chocolate gold foiled coins.

A wrapped coin is like digital versions of things like cryptocurrencies, gold, and real estate.

They’re made by putting the original asset on a blockchain, so you can buy, sell, and trade them online.

The exact origin of wrapped coins is unknown, but they’re often connected to coins created using the ERC-20 standard on the Ethereum blockchain.

A big advantage of wrapped coins is they let you trade assets that were hard to move around before. 

For example, gold is valuable but not easy to trade online without help. By making a digital version of it, you can trade it more easily and securely. The same goes for real estate and stocks.

To create a wrapped coin, you have to follow a set of rules and use smart contracts on a blockchain platform like Ethereum. 

The most common type is the ERC-20 token. The great thing about wrapped tokens is that they keep their value because they’re connected to the value of the original asset. 

So, for example, if a wrapped coin represents one gram of gold, its value will change with the market price of gold.

Wrapped coins are becoming more popular in decentralized finance (DeFi), a movement that wants to make financial services more open and accessible.

They’re a key part of many DeFi projects because they help move and trade assets securely and transparently.

Key Points

  • Wrapping coins allows for easier transfer and trading of physical coins on blockchain networks.
  • Wrapped coins are usually pegged to the value of the underlying physical coins, so their value should remain relatively stable.
  • The use of wrapped coins can help to bridge the gap between traditional finance and blockchain-based applications.

Benefits of Wrapped Coins in DeFi

DeFi, or Decentralized Finance, is on the rise, providing financial services in a decentralized and open environment with the help of blockchain and smart contracts. 

Wrapped coins play a crucial role in DeFi, as they allow the secure and transparent transfer of various assets through digital representations. 


By representing assets that previously couldn’t be traded in a decentralized manner, wrapped coins increase accessibility and create new investment opportunities.

For instance, wrapped coins can represent traditional assets like stocks or real estate. This makes them tradeable in a secure and efficient manner.

Higher Security

The creation of wrapped coins involves smart contracts, ensuring a higher level of security and transparency compared to traditional financial instruments. 

Moreover, wrapped coins are backed by the underlying assets. This makes their value directly tied to the assets’ value which provides stability and security for investors.

Increased Liquidity

Wrapped coins allow for easy buying and selling of assets on digital exchanges, which increases the liquidity of the assets. It also makes price discovery more efficient.

Lower Costs

Wrapped coins reduce the need for intermediaries, lowering the overall cost of financial transactions. 

Additionally, DeFi applications usually have fewer onboarding requirements than traditional financial institutions, reducing the costs even further.

Greater Efficiency

By reducing intermediaries and the risk of errors or fraud, wrapped tokens make financial transactions faster and more convenient.

They can be used in various DeFi applications, such as stablecoins, prediction markets, lending and borrowing platforms. This creates new financial instruments and enables decentralized trading and investing.

What Wrapped Coins Are Not So Good At

There are of course also some limitations to wrapped tokens that you should be aware of:


While wrapping your coins can sometimes save you money on transaction fees, the process of wrapping your tokens may come with its own set of fees which could be rather costly. 

Inequivalent value

In theory, the value of a wrapped tokens should be the same as the original cryptocurrency it represents. However, during times of high market volatility, the value of the wrapped token may be lower than the value of the original coin.

What Makes Up a Wrapped Coin?

A wrapped coin is made up of several important components that work together to make it a valuable digital asset. Here’s what you need to know:

The Underlying Asset

 A wrapped coin represents an underlying asset, which can be a cryptocurrency, traditional asset, or even a non-fungible token (NFT). This underlying asset is what gives the wrapped token its value and backing.

The Smart Contract

Wrapped tokens are created using smart contracts. These are special computer programs that execute automatically when specific conditions are met. These smart contracts specify the rules and standards for the wrapped coin, including how it can be created, traded, and destroyed.

The Blockchain Platform

Wrapped tokens can be created on different blockchain networks, such as Ethereum or Binance Smart Chain. The blockchain platform you choose can impact the features and capabilities of your wrapped token.

The Token Standard

Many wrapped coins follow a specific coin standard, such as the ERC-20 standard on the Ethereum blockchain. These standards help ensure that wrapped tokens are created, traded, and destroyed in a consistent and standardized way.

Digital Asset Exchanges

Finally, wrapped tokens can be bought and sold on digital asset exchanges, which provide a marketplace for trading and liquidity. The exchange you choose can impact the accessibility and liquidity of your wrapped coins.

DeFi’s Most In-Demand Wrapped Coins

When it comes to decentralized finance (DeFi), wrapped tokens are all the rage. 

These tokens are essentially cryptocurrencies wrapped in blockchain, making them usable in DeFi applications and tradable on digital exchanges.

Let’s take a look at some of the most popular wrapped coins:

This token takes actual Bitcoin and turns it into a blockchain-based representation on the Ethereum network, allowing Bitcoin to join the DeFi party.

Just like WBTC, WETH takes Ethereum and wraps it in blockchain, making it DeFi-friendly.

Potential Developments With Wrapped Coins

Wrapped coins are opening up a world of possibilities, and here’s why:

Traditional Assets Wrapped Coins

By turning traditional assets like real estate or stocks into wrapped tokens, we can create new investment opportunities and trade these assets in a more secure and efficient way.

NFT Wrapped Coins

Non-fungible tokens (NFTs) are one-of-a-kind digital assets that prove ownership of a specific item or asset. By wrapping NFTs as tokens, we can create new markets and investment opportunities.

Stablecoin Wrapped Coins

Stablecoins are digital assets pegged to a specific asset or currency with the goal of maintaining stability in value. By wrapping stablecoins, we can invent new financial instruments and investment opportunities.

Commodity Wrapped Coins

Even commodities like gold, silver, or oil can become wrapped tokens, leading to the creation of new markets and investment opportunities.

Final Thoughts on Wrapped Coins

In conclusion, wrapped tokens have the potential to significantly impact the way we think about interoperability in the blockchain world. 

By allowing different blockchain assets to be used in a single ecosystem, wrapped coins open up new possibilities for cross-chain communication and collaboration. 

As the demand for wrapped tokens grows, we can expect to see more and more projects adopting this innovative approach to interoperability. 

It will be interesting to see how wrapped tokens shape the future of the crypto industry and how they may even redefine the way we think about cryptocurrency as a whole.

Check out our list of wrapped coins right here!

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