Wrapped tokens: what they are, how they work, and why they are needed

Decentralized platforms such as Ethereum, BNB Chain, Solana, and TRON allow users to issue and use a wide variety of tokens.

The same token can exist on several decentralized networks at once. For example, Tether (USDT), the largest stablecoin by market capitalization, is simultaneously used on:

• Ethereum;
• BNB Chain;
• Solana;
• TRON;
• Avalanche;
• Polygon;
• Arbitrum;
• OP Mainnet, formerly known as Optimism, and more than 50 other networks.

However, a token cannot simply be transferred from one network to another. Each blockchain is an isolated system that operates according to its own rules.

In other words, different networks use different, and often mutually incompatible, standards and programming languages to create tokens.

What are wrapped tokens?

Wrapped tokens are digital assets that serve as tokenized representations of an original cryptocurrency. They can be issued either on the blockchain of the original asset or on another network. As a rule, the value of a wrapped token is pegged to the value of the original asset at a 1:1 ratio.

In other words, a wrapped token is a tokenized copy of an original digital asset, issued either on its native blockchain or on another blockchain and pegged to its value.

Wrapped tokens are one of the main methods used to transfer cryptocurrencies between different networks and play a key role in the DeFi market.

The first wrapped tokens appeared as early as 2017, during the major cryptocurrency and ICO* boom.

* An ICO, or Initial Coin Offering, is a method of issuing and selling cryptocurrencies to raise investment for blockchain startups.

However, wrapped tokens became significantly more widespread in 2020, when the DeFi and NFT markets experienced rapid growth.

How do wrapped tokens work?

First, a digital vault or reserve is created to back the tokenized copies. The entities that hold such digital reserves are called custodians*.

* A custodian is an organization, protocol, or other party that accepts original digital assets for safekeeping, locks them in a reserve, and controls the issuance of the corresponding number of wrapped tokens. The custodian's reliability determines whether holders can subsequently exchange their wrapped tokens back for the original assets.

The process of issuing wrapped tokens works as follows: the custodian locks the original cryptocurrency in a specially designated reserve and issues an equivalent number of wrapped tokens on a particular network.

For example, a custodian may lock the original ETH cryptocurrency on the Ethereum network and issue wrapped ETH tokens, WETH, on BNB Chain, Solana, or any other supported ecosystem.

The redemption process for wrapped tokens takes place in reverse. The issuer burns the tokenized copies and returns the original crypto assets to the user's wallet.

Advantages and disadvantages of wrapped tokens

One of the main advantages of wrapped tokens is that they expand the range of possible cryptocurrency use cases and allow assets to be used across different decentralized ecosystems.

For example, the introduction of Wrapped Bitcoin tokens, WBTC, allowed users to transform Bitcoin from a passive store of value into a fully fledged decentralized finance instrument.

Before Wrapped Bitcoin appeared, Bitcoin holders could only earn income from investing, trading, and mining. However, after WBTC tokens were issued, holders gained the ability to use Bitcoin through decentralized protocols for:

• lending;
• yield farming*;
• liquidity mining;
• launchpads*;
• staking*.

* Yield farming is a way of earning income from cryptocurrency by placing it in DeFi protocols. Users provide assets to liquidity pools, lending services, or other decentralized applications and receive fees or token rewards in return.

* A launchpad is a specialized platform through which new blockchain projects conduct the initial offering and distribution of their tokens. Users may gain access to token purchases before open trading begins, although such investments may involve high volatility and the risk of the project failing to launch successfully.

* Staking is the placement or locking of cryptocurrency to earn rewards. In blockchains that use the Proof-of-Stake, or PoS, consensus mechanism, staked assets participate in transaction validation and help secure the network. In DeFi, the term "staking" may also refer to depositing tokens into a smart contract to earn income, even when those tokens do not directly participate in the operation of the blockchain.

Among other things, wrapped tokens can increase the liquidity of a particular cryptocurrency, which, in turn, makes the asset more valuable to investors and users.

Another advantage of wrapped tokens is that they can reduce fees for transfers and other operations, which is particularly important for microtransactions. For example, using WBTC tokens on networks such as Arbitrum and Polygon can reduce transaction costs by dozens of times compared with the original Bitcoin protocol.

However, wrapped tokens also involve certain risks. One of the main risks associated with wrapped tokens lies in the centralization of custodians.

Wrapped-token holders are forced to entrust their original assets to a third party, which may potentially block them. Access to holders' funds may also be lost for other reasons, such as the bankruptcy of the custodian company.

Another significant risk lies in potential vulnerabilities in the smart contracts used to issue wrapped tokens. If attackers manage to discover and exploit such vulnerabilities, they may be able to drain the reserve containing the original crypto assets, causing the wrapped tokens to lose their value immediately.

For example, such an incident occurred with the well-known Wormhole bridge* in 2022. Attackers managed to exploit the protocol's smart contract on the Solana network and withdraw approximately 120,000 wrapped WETH tokens. The damage caused by the Wormhole bridge hack amounted to approximately $320 million at the time of the attack.

* A blockchain bridge is a software protocol that enables the transfer of digital assets and data between different blockchains that are not directly compatible with one another. As a rule, when tokens are transferred, the original asset is locked on one network, while an equivalent representation is issued on another.

Examples of wrapped tokens

1. Wrapped Bitcoin (WBTC)

As of July 2026, WBTC is the largest wrapped token on the cryptocurrency market by capitalization. According to CoinMarketCap, Wrapped Bitcoin has a market capitalization of $7.4 billion, surpassing Cardano (ADA), Monero (XMR), and Chainlink (LINK) by this metric.

Wrapped Bitcoin, or WBTC, is also the first tokenized version of the original Bitcoin based on the Ethereum blockchain, launched in January 2019. Later, the Wrapped Bitcoin developers added support for other networks, including Solana, Avalanche, Polygon, Fantom, OP Mainnet, and dozens of others.

Approximately 116,500 WBTC tokens are currently in circulation, representing around 0.5% of the total supply of the original Bitcoin.

2. Wrapped ETH (WETH)

Wrapped ETH, or WETH, is the first and most popular tokenized version of the original Ethereum cryptocurrency. It was created by 0x Labs in 2017.

WETH ranks second among wrapped tokens after WBTC by market capitalization, which exceeded $6.2 billion as of July 2026.

According to CoinMarketCap, 3.37 million WETH tokens are in circulation, representing almost 2.8% of the total number of original ETH coins.

3. Coinbase Wrapped BTC (CBBTC)

Coinbase Wrapped BTC is the third-largest asset in the wrapped-token category, with a market capitalization of approximately $5.9 billion.

CBBTC is a tokenized version of the original Bitcoin issued in 2024 by Coinbase, a well-known cryptocurrency exchange, on the Ethereum and Base networks. The issuer of CBBTC tokens later added support for two more networks: Solana and Monad.

As of July 2026, almost 93,000 Coinbase Wrapped BTC tokens had been issued, representing approximately 0.45% of Bitcoin's total supply.

4. Wrapped weETH (weETH)

Wrapped weETH is another tokenized version of the original ETH cryptocurrency, with a market capitalization reaching almost $3.5 billion. weETH was launched by the well-known Ether.Fi protocol, which allows users to earn income from staked ETH.

The Ether.Fi protocol therefore allows users to use wrapped weETH tokens while maintaining the liquidity of their staked original Ethereum coins.

As of July 2026, 1.7 million weETH tokens were in circulation, representing approximately 1.4% of the total Ethereum supply.

5. Wrapped BNB (WBNB)

Wrapped BNB is the leading tokenized version of the original BNB cryptocurrency, which is the native coin of the BNB Chain ecosystem. As of July 2026, Wrapped BNB's market capitalization was approaching $1 billion, placing the asset among the five largest wrapped tokens by this metric.

WBNB was launched in 2020 and operates across various blockchain ecosystems, including Ethereum, Solana, Avalanche, Polygon, and dozens of others.

Approximately 1.58 million WBNB tokens are currently in circulation, representing around 1.2% of the total number of original BNB coins.