Wrapped Tokens
Wrapped tokens are blockchain-based digital assets that represent another cryptocurrency or token on a different blockchain, enabling cross-chain interoperability. They are created by locking the original asset in a smart contract or custodian and issuing an equivalent amount of wrapped tokens on the target blockchain, which can then be used in decentralized applications (dApps), DeFi protocols, or trading. This process allows assets like Bitcoin to function on Ethereum-based ecosystems, expanding their utility beyond their native chains.
Developers should learn about wrapped tokens when building or integrating with cross-chain applications, DeFi platforms, or multi-blockchain systems to enable asset portability and liquidity across networks. They are essential for creating interoperable solutions, such as using Bitcoin in Ethereum smart contracts for lending or yield farming, and for reducing fragmentation in the crypto ecosystem by allowing assets to move seamlessly between chains.