How does wrapped coin work in the context of decentralized finance (DeFi)?

3 answers

• Dec 25, 2021 · 3 years ago
  Wrapped coins are a type of digital asset that represents another cryptocurrency or traditional asset. They are created by locking the original asset in a smart contract and issuing an equivalent amount of wrapped coins. These wrapped coins can then be traded on decentralized exchanges (DEXs) and used in various DeFi applications. The purpose of wrapping a coin is to enable its use on different blockchain networks or to provide additional functionality and liquidity within the DeFi space. For example, wrapping Bitcoin allows it to be used on Ethereum-based DeFi platforms, opening up new opportunities for Bitcoin holders to participate in DeFi activities.
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• Dec 25, 2021 · 3 years ago
  Wrapped coins are like the chameleons of the crypto world. They take on the appearance and properties of another cryptocurrency, allowing them to be used in different blockchain ecosystems. Let's say you have some Bitcoin and you want to use it on a DeFi platform that operates on Ethereum. By wrapping your Bitcoin, you can convert it into a wrapped Bitcoin (WBTC) that is compatible with the Ethereum network. This opens up a whole new world of possibilities for your Bitcoin holdings, allowing you to participate in DeFi lending, borrowing, and trading without having to sell your Bitcoin. It's like having your cake and eating it too!
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• Dec 25, 2021 · 3 years ago
  Wrapped coins, such as WBTC, are an essential component of the DeFi ecosystem. They bridge the gap between different blockchain networks, enabling cross-chain interoperability. Wrapped coins are created by depositing the original asset into a custodian, who then mints an equivalent amount of wrapped coins on the target blockchain. These wrapped coins are backed by the original asset, ensuring their value and providing users with the ability to redeem them for the underlying asset at any time. In the case of WBTC, the custodian is a consortium of centralized exchanges, which adds a layer of trust and security to the process. By using wrapped coins, users can access a wider range of DeFi applications and take advantage of the benefits offered by different blockchain networks.
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