Plain English
A wrapped token is a representation of one blockchain’s asset on another blockchain. Wrapped Bitcoin (WBTC) is BTC issued as an ERC-20 on Ethereum. Wrapped ETH (WETH) makes ETH usable as a standard ERC-20 inside DeFi. The underlying is held in custody; the wrapped version is the spendable IOU.
How it actually works
The wrap-unwrap cycle is mechanical: lock 1 BTC with a custodian or bridge contract → receive 1 WBTC. Send the WBTC back → receive your BTC. Reserves should always equal circulating wrapped supply; major wrapped tokens publish proof-of-reserves regularly.
What it means for you
Wrapped tokens unlock liquidity but introduce counterparty risk on top of whatever the underlying carries. If the custodian or bridge fails, your wrapped token is unbacked even if the original is fine. For long-term holding, prefer native assets in their native chains. For DeFi activity, use wrapped versions only when the yield or strategy economics justify the additional layer of risk.
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Educational content only. Not investment, tax, or legal advice.