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Glossary Term

Wrapped Token

A wrapped token is a digital asset representing another cryptocurrency, typically on a different blockchain, enabling interoperability and wider usage within various DeFi ecosystems. Wrapped tokens preserve the value of the original asset while allowing it to be used on platforms it was not originally designed for.

Beginner
Technology
Crypto Terminology

Wrapped Token: what is it?

A wrapped token is a synthetic version of a cryptocurrency pegged 1:1 to the value of an original asset, but issued on a blockchain different from the asset’s native chain. Wrapping involves “locking” the original cryptocurrency in a smart contract or with a trusted custodian, then issuing an equivalent token on another network—facilitating cross-chain liquidity and interactions.

On Solana, for example, wrapped tokens like wBTC (Wrapped Bitcoin) or soETH (Wrapped Ethereum) allow users to utilize assets such as Bitcoin or Ethereum on Solana’s fast, low-cost DeFi networks. These wrapped assets make it possible to trade, lend, or stake non-native tokens on Solana dApps, vastly expanding the utility and reach of popular cryptocurrencies.

How It Works

  • The original asset is deposited into a smart contract or to a custodian who holds it securely.

  • An equivalent amount of wrapped tokens is minted on the destination blockchain.

  • At any time, the wrapped tokens can be redeemed (“unwrapped”) for the underlying asset at a 1:1 ratio.

  • Price tracking is enforced via decentralized protocols or custodians to ensure parity.

  • This wrapping and unwrapping process is central to cross-chain bridges operating on Solana.

Wrapped Token in Solana’s Ecosystem

Solana supports a wide variety of wrapped tokens, thanks to bridges connecting Solana to Ethereum, Bitcoin, and other major blockchains. Wrapped tokens power key activities such as trading on Solana-based decentralized exchanges (DEXs), liquidity provision, and borrowing/lending protocols.

Why Are Wrapped Tokens Important?

  • Enable cross-chain interoperability and DeFi participation.

  • Unlock greater liquidity for non-native assets on Solana.

  • Essential for multi-chain dApps, liquidity pools, and broader crypto integrations.

🔑 Key points

  • Wrapped tokens are fully backed, pegged versions of assets issued on different blockchains.

  • Common with assets like Bitcoin (wBTC) and Ethereum (soETH) on Solana.

  • Core to liquidity bridges, DeFi trading, and cross-chain utility.

  • Can be “unwrapped” to reclaim the original asset at any time.

Examples

  • 1

    Using wBTC on Solana to trade Bitcoin on a Solana DEX.

  • 2

    Earning yield on wrapped ETH through a Solana-based lending protocol.

  • 3

    Participating in multi-chain NFT drops with SOL-wrapped assets.

Common Use Cases

DeFi trading and loan operations on Solana using assets from other chains.
Liquidity provision and yield farming in Solana pools.
NFT/minting platforms accepting wrapped tokens.

Pro Tips

💡

Always verify the smart contract/custodian backing a wrapped token.

Frequently Asked Questions

Are wrapped tokens always backed 1:1?
Yes, reputable wrapped tokens are always backed 1:1 by the underlying asset held in reserve.
Can I unwrap a wrapped token at any time?
Yes, as long as the custodian or smart contract is functioning, you can exchange the wrapped token for the original asset 1:1.
Are wrapped tokens real crypto?
Wrapped tokens represent—and are redeemable for—real crypto, but they function as pegged derivatives on a different chain.

Related Terms

Smart Contract Audit
Proof of Stake (PoS)
Smart Contract
Bridge
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