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Bybit Learn
Jan 4, 2021

Wrapped Ether

Wrapped Ether (WETH) is an ERC20-compatible token pegged to Ether’s value, meaning that users can redeem it for the original coin anytime without affecting its value.

What Is Wrapped Ether?

Ether is one of the most commonly known cryptocurrencies in the crypto-verse. It is hard to talk about top cryptocurrencies without talking about Ether. It is the native currency on the Ethereum blockchain, the second largest blockchain network. 

Wrapped Ether or WETH is the ERC-20 compatible version of Ether. The term WETH has become popular over time, and you’ve likely heard it before while reading or talking about Ethereum.

As a native currency on the Ethereum blockchain, Ether was created before the ERC20 standard. It, therefore, is not ERC20 compatible and cannot be exchanged directly for other ERC20 tokens. 

For Ether to be exchanged with other Ethereum-based tokens, tokens that conform to the ERC20 standard, it has to be wrapped in WETH. Wrapping ETH does not affect its value as the ratio remains 1:1. 

Wrapped Ether can be created by sending Ether to a smart contract where the Ether is placed on hold and getting WETH ERC20 tokens in return. 

Wrapped Ether can also be sent back into the same smart contract to be “unwrapped,” getting back the original Ether. 

Utilizing one smart contract for wrapping and unwrapping ether eliminated the need to create two interfaces (one for Ether and one for ERC20 tokens) within the same smart contract. 

Wrapping ther allows for increased functionality. The tokens can seamlessly be exchanged with other ERC20 tokens without the need for intermediaries. 

ERC20 Token Standard

ERC20 token standard defines certain rules and standards for issuing tokens on the Ethereum network. Some of the rules include how the tokens can be transferred, how transactions are approved, and how users can access data about the tokens. 

ERC20 tokens are similar to other cryptocurrencies like Bitcoin and Litecoin. The major difference is that instead of running on their own blockchain, the tokens are issued on the Ethereum network. 

As of 2019, more than 200,000 ERC20 tokens exist on the Ethereum network. Some of the major digital currencies using the ERC20 standard include Maker (MKR), OmiseGo (OMG), and Augur (REP).

Prior to ERC20 tokens, crypto exchanges had to create custom bridges between platforms to support the exchange of any token.

The popularity of ERC20 Tokens is what led to Wrapped Ether. To enjoy the benefits and vast functionality of ERC20 tokens, Wrapping Ether becomes essential.

Despite some lingering debate around alternative token interfaces such as ERC223, ERC20 is still widely accepted as the de facto standard on the Ethereum network.

Many Ethereum-based decentralized applications (DApps) use WETH instead Ether for direct and decentralized peer-to-peer trading. 

Currently, experts are working on ways to have a canonical WETH standard that can serve all Ethereum-based dApps. 

The proposed canonical WETH contract is based on Stefan George’s EtherToken.sol contract. The source code for the proposed WETH contract has been thoroughly vetted, and the idea has so far received a positive reaction from the community.