![]() Source: CoinMetricsĪs covered in the ConsenSys Codefi Q3 DeFi report, one of the major trends in the middle of 2020 was the rise of decentralized exchanges (DEXes). But this simple action has powerful consequences, evidenced by the 5.5 million ETH transformed into WETH by the end of Q4 2020. “Wrapping” seems like a misnomer, since you’re actually just trading one token for an ERC-20 token of equal value. To unlock your original tokens, you simply trade your wrapped tokens back to the smart contract. This is analogous to a traditional structured note, issued by a DeFi robot. To wrap a token, typically a user “locks” the original token in a smart contract, which then mints an equivalent amount of wrapped tokens. Wrapped ETH (or WETH) transforms ETH into an ERC-20, which provides all the functionality and transferability of an ERC-20 token. The introduction of wrapped tokens actually began with ETH itself, since the ERC-20 token standard came after the attributes for sending and storing ether were established. ERC-20 tokens remain the most widely-used standard for token design, and ensures that the rules of smart contracts remain compatible with applications like decentralized exchanges or lending protocols. Wrapping tokens on Ethereum describes the process for transforming an existing crypto asset into an ERC-20 token. In this post we discuss wrapped tokens, teach you how Bitcoin can be used on Ethereum and become an income-generating asset, and discuss the ways in which wrapped tokens are bringing more liquidity to Ethereum’s DeFi ecosystem. Q4 2020 saw exponential inflows of value tokenized on Ethereum, and as the DeFi ecosystem’s network effects continue to grow, we predict additional protocols will launch wrapped versions of their tokens on Ethereum in 2021. With new design patterns, it’s now possible to put digital assets like Bitcoin or Filecoin on Ethereum so they can interact with DeFi applications. Download the full report to learn more about token standards for assets and payments, NFT marketplaces, social and community tokens, DAOs, flash loans, wrapped Bitcoin and Filecoin, lending projects and more.Įthereum is increasingly attracting digital assets from other blockchain protocols. This is part of a series of articles from ConsenSys Codefi’s Q4 2020 Ethereum DeFi Report.
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