A wrapped token is a token that represents another asset, usually one that cannot be used directly where the wrapped version lives. Wrapped Bitcoin (WBTC) lets bitcoin be used on Ethereum. Wrapped Ether (WETH) makes ETH behave like a standard token. Both aim to hold the same value as the original, but they get there in very different ways, and the difference matters for risk.
Why Wrapping Exists
There are two separate problems that wrapping solves.
The first is that blockchains cannot talk to each other. Bitcoin cannot be sent to an Ethereum smart contract. To use bitcoin's value in Ethereum applications, someone has to hold real BTC and issue a token on Ethereum that stands for it.
The second is a standards problem inside Ethereum. Most tokens follow the ERC-20 standard, a common set of functions that every application knows how to call. ETH is the network's native currency and existed before ERC-20, so it does not follow that standard. Applications that are written to handle ERC-20 tokens cannot treat native ETH the same way.
How WETH Works
WETH is the simplest kind of wrapped token. It is a smart contract on Ethereum with two main functions.
- Deposit: you send ETH to the contract, and it credits you with the same amount of WETH.
- Withdraw: you return WETH, the contract burns it and sends you the same amount of ETH.
There is no company, custodian or bridge involved. The ETH sits in the contract, and anyone can check that the contract's ETH balance matches the WETH supply. The rate is always one to one because the contract allows nothing else. Ethereum.org has a short explainer on wrapped ether.
WETH is used wherever an application needs ETH to act like a token: as one side of a trading pair on decentralized exchanges, as collateral in lending markets and for bids on NFT marketplaces. Many apps wrap and unwrap automatically, so users often hold WETH without noticing.
You still need native ETH to pay gas. A wallet holding only WETH cannot send a transaction.
How WBTC Works
WBTC is an ERC-20 token on Ethereum backed one to one by bitcoin held in custody. It launched in January 2019 as a joint project of BitGo, Kyber Network and Ren. The project's site is wbtc.network.
The system has three roles.
- Custodian: holds the bitcoin and controls the minting of WBTC.
- Merchants: approved firms that request minting and burning. They are the ones who deal with the custodian.
- Users: get WBTC from a merchant, or more often simply buy it on an exchange.
To mint, a merchant sends BTC to the custodian, and the custodian mints the same amount of WBTC to the merchant on Ethereum. To redeem, the merchant burns WBTC and the custodian releases the BTC. The bitcoin reserve addresses are published, so anyone can compare the BTC held with the WBTC in circulation.
BitGo was the sole custodian for the first years. In August 2024 it announced a move to a joint custody arrangement across several jurisdictions with a partner, BiT Global. The change drew criticism from parts of the DeFi community and led some protocols to review their exposure. It is a useful reminder that WBTC depends on its custodians, and that the custody setup can change.
Other Wrapped Bitcoin Designs
WBTC is not the only version of bitcoin on other chains.
- Custodial tokens: issued by a single company that holds the BTC, such as cbBTC from Coinbase, launched in 2024.
- Decentralized designs: tBTC uses a network of operators instead of one custodian to hold the bitcoin.
- Bridged versions: when WBTC or WETH is moved to a Layer 2 or another chain through a bridge, the result is a wrapped version of a wrapped token.
Each version is a different token with a different contract address and different backing. They are not interchangeable, even if the names look alike.
Risks to Understand
- Custodial risk: for tokens like WBTC, the backing is held by companies. Insolvency, a hack, a legal order or mismanagement could affect redemption.
- Smart contract risk: every wrapped token depends on its contract code. WETH's contract is short and has been in use for years, which lowers this risk but does not remove it.
- Bridge risk: a token that reached a chain through a bridge is only as sound as that bridge. If the bridge is drained, the bridged token can lose its backing.
- Depeg risk: in stressed markets, or when confidence in the backing drops, a wrapped token can trade below the asset it represents.
- Access risk: only approved merchants can redeem WBTC for BTC directly. Everyone else relies on market liquidity to exit.
The first question to ask about any wrapped token is who or what holds the underlying asset, and what would have to go wrong for you to be unable to redeem it.
Common Mistakes
- Assuming every token called "wrapped BTC" is WBTC. Check the contract address against the issuer's official site.
- Sending BTC to an Ethereum address or WBTC to a Bitcoin address. They are on different networks.
- Wrapping all of your ETH and leaving nothing for gas.
- Depositing a bridged version of a token into an application that only accepts the native version.
- Forgetting that in some countries, swapping BTC for a wrapped version may count as a taxable disposal. Check your local rules.
Nothing in this article is financial advice.
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The Wrapped Bitcoin price page shows the live WBTC price and supply, which you can compare with the Bitcoin price page to see whether the two are trading in line. The DEX page lists active pools, many of which use WETH as one side of the pair.