Whether in the latest Discord thread or while browsing which NFT to buy next, chances are that you have stumbled upon the concept of Wrapped Ether (wETH). And while this “wrapped token” is vital for many transactions in today’s blockchain world, most users are still confused about its purpose and functionalities.

So, what’s the big deal about wETH? Well, unlike Ether (ETH) – the native coin of the Ethereum blockchain – it responds to one critical problem digital tokens have: the difficulty of fast and cheap cross-chain transactions. But how does wETH do it? And what things do you need to watch out for when wrapping and unwrapping your tokens? 🤓

The interoperability dilemma

Wrapped Ether is only one of all the wrapped tokens out there. However, they were all built to tackle the insufficient interoperability of blockchain networks. For example, normally, you wouldn’t be able to use Bitcoin on the Ethereum blockchain. But by wrapping it and tokenizing it to meet that blockchain’s token standards, it suddenly becomes possible.

Ethereum may be a blockchain giant, but Ether does have some shortcomings. Most importantly, it’s slightly older than ERC-20, the blockchain’s main token standard. ERC-20 represents a set of rules that simplified the way tokens could be created and transferred on the Ethereum blockchain, as well as how these transactions are recorded. However, ETH itself doesn’t meet these standards – and to deal with this without having to rebuild the Ethereum blockchain from scratch, the wETH was launched.

As more and more layer-two Ethereum-based blockchains appear, be it Arbitrum, Avalanche, Optimism, it’s vital to have a version of ETH that is usable within these decentralized applications (dApps). There’s a need for a SIM card adapter or an aux cable in the world of blockchain too. In the simplest terms possible, in the way Ethereum works today, ETH serves as the currency; wETH as the enabler of the improved functionality of the network.

By simplifying the process, wETH also solves the notorious problem of ultra-high gas fees for ETH. This is because other blockchains may have their version of wETH, making it easy for them to create a mirror image of ETH on their blockchain without having to actually transfer it.

So, why do you need wETH?

Many decentralized apps that run on Ethereum use smart contracts to facilitate trade between users. But to engage in this trade, you need to have tokens that meet the same standardized format. This means that wETH allows you to trade currency for other ERC-20 compatible tokens – something very relevant in the realm of NFTs. For example, if you’ve interacted with a platform like Polygon (a layer-two network on Ethereum), it’s likely that you’ve had to wrap your Ether.

Still confused? Let’s explore this example more closely. Just as ETH is used to pay gas prices on Ethereum, MATIC, Polygon’s coin, is used to pay fees on its network. But as these are native coins, they can’t move across networks easily and need a “medium” to communicate with each other. By wrapping ETH and sending it to Polygon, it can be used like any other token. 

It’s also worth noting that wETH and ETH are comparable with a 1:1 ratio. When it comes to their value, you can basically imagine wrapped tokens as a stablecoin version, always tied to the value of the original coin.

Never send wETH to token address & other common issues

It doesn’t exactly take Albert Einstein to figure out that while wETH does its job great; it’s adding other pain points for users, primarily through laborious wrapping. But there are more reasons why you should do proper research before wrapping your Ether – if you don’t, you could end up losing your ETH.

Recently, a now-deleted post on Reddit went viral after an anonymous user shared they allegedly lost $500 thousand after sending wrapped Ether (wETH) directly into a wETH wrapping smart contract. And on-chain data indicates that 265 people in total made the same mistake. 

Always remember that to wrap Ether, you need to send ETH to the wETH smart contract address and receive an equivalent token in return. But it doesn’t work the other way around: The problem is when users trying to unwrap their wETH send it directly to the smart contract that wrapped their Ether in the first place.

To properly unwrap, you need to either trigger the withdrawal function in the wwETH smart contract or swap on a decentralized exchange (such as Uniswap) and get the ETH. The user that lost their half a million dollars “burned” the token instead, resulting in a loss that can’t be reversed.

Ethereum has been working hard to update its codebase and drive interoperability even with its native coin. But until that happens, wETH will continue being the gateway to many transactions and interactions across blockchains and decentralized apps. If you want to make the most of it, just make sure to follow the right process when wrapping and unwrapping your Ether.

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