What is WETH (wrapped ETH)?
WETH stands for Wrapped ETH, which is an ERC-20 standard wrapped token linked 1:1 to native ETH coin and circulating in the Ethereum network. It was first developed and implemented by a group of Ethereum projects led by 0x labs.
What is the difference between WETH and ETH?
ETH is the native coin of Ethereum blockchain network and it is not an ERC-20 standard token. It was in circulating in the market before ERC-20 standard was created in 2015. It cannot be used directly as other DeFi smart contracts tokens like DAI, USDT, to paired as pool in AMMs or other smart contracts activities.
In fact the native ETH coin can only be used as gas fee or block rewards for Ethereum miners (before merge) or validators (after merge). Without enough native ETH coin in you wallet, you cannot realize any transfers, swap or other smart contract activities.
WETH is ERC-20 token that can be used widely as other ERC-20 tokens like USDC or WBTC. It allows you to trade directly with alt tokens.
The reason you need WETH is to be able to trade ETH for other ERC-20 tokens on decentralized platforms like Uniswap or Compound. Because decentralized platforms running on Ethereum use smart contracts to facilitate trades directly between users, every user needs to have the same standardized format for every token they trade. This ensures tokens don’t get lost in translation.
What is wrapped token?
Wrapped Token refers to a mapping/proxy asset (a token) that issues a native asset (a coin) from one blockchain (e.g. BTC in Bitcoin network) to another/multiple blockchains or its own blockchain (WETH is also on Ethereum chain).
The issued wrapped tokens are backed and pegged 1:1 with the original asset (the native coin). Every wrapped token can be traced back to a locked coin on the original chain.
Wrapped Token mainly solves the problem of non-integration of original assets between different chains, and was the dominant solution before the emergence of Layer Zero.
After staking the original asset, a new representative Token is minted in another standard, and there can be multiple Wrapped Tokens for the same original asset as long as they meet different format standards (e.g. WBTC)
Blockchains such as Bitcoin and Ethereum is as separate distributed databases. As blockchains are separate, they can’t communicate easily with each other.
Almost every chain will have its own native asset Coin, and these Coins are also not interoperable due to the different nodes and consensus.
You can’t use your Bitcoin directly on the Ethereum blockchain, because only the Bitcoin blockchain “knows” that you hold Bitcoin.
Wrapped tokens were created as a solution to this problem. It uses a new token to represent the original asset's value. With wrapped tokens, you can effectively move assets between blockchains and use them across the crypto ecosystem.
The core logic of Wrapped Token is it is just a representation. The point of this, is that some blockchain can do things that other blockchains can't. Meanwhile different coins are not available for other chain. So the early developers made representations and called them wrapped tokens so that you can essentially have the main coin, but use it on any other chains.
Why there are multiple contracts of WETH?
According to the definition of wrapped token, generally, all ETH assets on other blockchains rather than Ethereum could be categorized as wrapped ETH.
TokenInsight concludes multiple smart contracts addresses that also represent ETH coin value on other non-Ethereum blockchains:
- Binance-pegged Ethereum: 0x2170Ed0880ac9A755fd29B2688956BD959F933F8
- Solana wrapped Ether (Wormhole): 7vfCXTUXx5WJV5JADk17DUJ4ksgau7utNKj4b963voxs
- Solana wrapped Ether (Sollet): 2FPyTwcZLUg1MDrwsyoP4D6s1tM7hAkHYRjkNb5w6Pxk