Wrapped Ether is an ERC-20 token on Ethereum that is tied to the value of Ether (ETH). Unlike ETH, which can be used for gas fees, WETH cannot. However, WETH has more diverse applications than ETH and is widely used in the Decentralized Finance (DeFi) ecosystem. MetaMask, TrustWallet, and most wallets on the Ethereum network will accept WETH. Let’s take a look at some of its uses.
Why do we need to Wrapped Ether?
Initially, it may be puzzling why there is a token called WETH when we already have ETH on the Ethereum blockchain. It’s important to realize that not all tokens on Ethereum are the same. Developers can establish unique rules and standards for cryptocurrencies on the network.
The ERC-721 format creates Non-Fungible Tokens (NFTs), which are different from Ether or ERC-20 tokens. Developers have flexibility in customizing these digital assets. While ETH can pay for gas fees on Ethereum, it can’t be used in every DApp.
Nowadays, many DeFi DApps accept ERC-20 tokens for investing and staking. Having ETH in ERC-20 form makes it easier to add to a liquidity pool or use as collateral. This ensures compatibility across the blockchain and simplifies the process of creating new smart contracts.
Wrapped ETH stay the same price as ETH?
Maintaining WETH’s peg with ETH relies on its 1:1 convertibility. If WETH is priced lower, individuals will purchase it and convert it to the pricier ETH for profit, boosting WETH’s demand and price. Conversely, if WETH is priced higher, people will buy ETH and convert it to WETH to sell, increasing WETH’s supply and decreasing its price. These supply and demand dynamics help keep the peg stable.
Conclusion
Ethereum’s DApp ecosystem is well-established and one of the oldest. WETH is essential for ETH holders looking to participate in DeFi projects. It’s easier to buy WETH with ETH or other tokens rather than dealing with wrapping smart contracts.