tl;dr
- WETH, or Wrapped Ether, is an ERC-20 token pegged 1:1 with Ether, enabling ETH to be traded on ERC-20-based DEXs.
- Wrapping Ether involves depositing it into a smart contract, which then mints equivalent WETH tokens, facilitating trading on DEXs.
- WETH usage provides liquidity for trading pairs and enables Ether's use in various DeFi protocols, strengthening the Ethereum ecosystem.
- To convert WETH back to ETH, users send the WETH tokens to the wrapper contract, which burns the WETH, returning ETH to the user's address.
What is WETH?
WETH, short for Wrapped Ether, is an ERC-20 token that is 1:1 pegged with Ether. It was created to enable Ether to be traded on DEXs that only support ERC-20 tokens. By wrapping Ether in the ERC-20 standard, it becomes compatible with the infrastructure of DEXs, which typically operate on the Ethereum blockchain.
The process of wrapping Ether involves depositing Ether into a smart contract, which then mints an equivalent amount of WETH tokens. Users can then use these tokens to trade on DEXs, and when they are finished, they can convert them back into Ether by sending them back to the smart contract and redeeming the underlying Ether.
WETH has become an essential component of the Ethereum DeFi ecosystem as it provides liquidity for trading pairs and enables the use of Ether in various DeFi protocols. Today, many DEXs, lending platforms, and other DeFi applications support WETH, making it a crucial part of the Ethereum ecosystem.
How Does WETH Work?
The process starts with a smart contract called the "wrapper contract." This contract holds a balance of ETH and mints and burns WETH tokens based on user interactions.
To obtain WETH, a user sends a specific amount of ETH to the wrapper contract. In return, the contract mints an equivalent amount of WETH tokens to the user's address. These tokens represent the user's ownership of the underlying ETH.
WETH tokens can be effortlessly transferred between users, smart contracts, or platforms, much like any other ERC-20 token. This is in contrast to ETH, which isn't natively supported by all DeFi applications due to its inherent complexity and potential issues with smart contracts.
When a user wants to convert their WETH back to ETH, they send the WETH tokens back to the wrapper contract. The contract burns the WETH tokens and returns the corresponding ETH to the user's address.
Wrapped vs. Unwrapped Tokens
Wrapped tokens are a type of cryptocurrency that has been converted from its original form to fit a specific blockchain's technical standards. The most common use case for wrapped tokens is to enable the usage of assets like ETH and BTC in DeFi protocols that only support ERC-20 tokens.
By wrapping these assets, they become compatible with the infrastructure of DEXs, lending platforms, and other DeFi applications.
How to get WETH?
There are two primary ways to obtain WETH. The first way is by wrapping Ether into WETH using the wrapper contract. The second way is by purchasing WETH on a DEX that supports WETH trading pairs.
WETH vs. WBTC
WETH and WBTC are two of the most popular wrapped tokens in the DeFi ecosystem. While WETH is a wrapped version of Ether, WBTC is a wrapped version of Bitcoin.
Both tokens are widely used on the Ethereum blockchain and other blockchain networks.
How to Unwrap WETH?
To unwrap WETH, users can easily initiate the redemption process on their wallets, such as Metamask, that support the Ethereum blockchain.
In the case of Metamask, users can select the WETH token on their wallet, input the amount they wish to unwrap, and initiate the transaction. The wallet will then send the WETH tokens back to the wrapper contract's burn function, which will release the corresponding amount of ETH back to the user's address.
FAQ
Is WETH an ERC-20 Token?
Yes, WETH is an ERC20 token, which means it follows the standard set of rules and requirements for tokens on the Ethereum blockchain. It is designed to be fungible and interchangeable with other ERC20 tokens, and can be stored in wallets that support Ethereum-based assets.
What can you do with WETH?
WETH is primarily used as a medium of exchange on DEXs and other DeFi applications. It allows users to trade Ether for other ERC20 tokens on DEXs like Uniswap, Curve, and Balancer without the need for an intermediary.
Additionally, WETH can be used as collateral in DeFi lending platforms like Aave and Compound to borrow other tokens or earn interest on the WETH itself. Overall, WETH plays a critical role in the Ethereum DeFi ecosystem by providing liquidity and enabling the seamless exchange of assets.
Can you Stake WETH?
WETH is not typically staked like ETH. While some platforms like Kraken may allow users to stake WETH directly, it is more common for users to unwrap their WETH back into ETH before staking it on a platform.
How to Transfer WETH?
Transferring WETH is similar to transferring any other ERC20 token on the Ethereum blockchain.
Where can you buy WETH?
Some of the most popular DEXs that support WETH trading include Uniswap, Balancer, and Curve. Additionally, WETH can be traded on centralized exchanges like Binance, Coinbase, and Kraken.
