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While browsing NFTs on an NFT marketplace, you might encounter the option of buying an NFT using WETH. What exactly is WETH and how is it different from ETH?
First, in order to understand WETH, we need to know what ETH is. Ether (symbol: ETH) is the Ethereum ecosystem’s native currency. It’s used when interacting with Ethereum and executing contracts on the platform.
WETH — aka Wrapped Ether — is a token pegged to ETH. It serves as a “container” that stores Ethereum and conforms to the ERC-20 standard.
In this article, we’ll be discussing what WETH is, how it compares with ETH, and the process of wrapping/unwrapping ETH.
ETH and WETH are different, although both have the same value (i.e., a 1:1 swap ratio).
WETH is an ERC-20 token that’s equivalent to ETH. This means that Wrapped Ether has the same properties and features as Ether. ERC-20 is a technical standard protocol that allows for an ERC-20 compatible token to interact with other tokens created on the Ethereum blockchain without a third-party application.
Wrapped Ether was created to address interoperability issues with ETH. Not only can WETH tokens be used outside of the Ethereum blockchain, but users can also create their own versions of the tokens for their custom DeFi applications.
The wrapped tokens — aka WETH — are always swapped in a ratio of 1:1, meaning that there’s no difference in price between ETH and WETH.
In other words, if you wish to use your Ethereum tokens in a decentralized app (DApp) or DeFi ecosystem, you can easily convert them into wrapped tokens and continue to use them.
Although ETH is the Ethereum blockchain’s native cryptocurrency, its use is limited, as most tokens traded use the ERC-20 standard. Ethereum was launched before token standards were established. Hence, Ether doesn’t follow ERC-20 standards, it can’t be used across various DApps and ecosystems. Issuing tokens in a wrapped version solves the problem.
By sending ETH to a smart contract, you can receive wrapped tokens in return, eliminating the need for a third party.
While centralized entities can easily provide seamless services, such as transferring assets from one bank to another, decentralized networks run on complex technology that requires constant upgrades to improve their blockchains. Wrapped tokens such as WETH are vital for seamless operation across the rapidly expanding decentralized space. They can be used in decentralized applications for activities like staking.
Smart contracts facilitate direct trades between users on Ethereum-based decentralized platforms, since every token needs to be standardized for users’ access. By doing this, tokens don’t get lost in the conversion.
A wrapped ETH is created through a smart contract that receives the ETH. A smart contract locks the ETH into a secure address, but you can exchange it anytime, as WETH is backed by ETH reserves. Hence, when the smart contract transfers the native token to your wallet, the wrapped token (WETH) is burned. The swap ratio is always 1:1. Do note that wrapping ETH will incur transaction fees or gas fees.
Alternatively, it might be simpler to exchange another token for WETH using a decentralized exchange (DEX). You can also swap another token for WETH directly through your MetaMask wallet.
The entire process of wrapping and unwrapping ETH can be completed by using UniSwap, OpenSea, and MetaMask.
Follow the steps below to wrap ETHER using MetaMask:
Once the transaction is completed, you’ll receive WETH in your wallet. You can transfer native tokens back to your wallet by unwrapping WETH.
Now that we know how to wrap ETH into WETH, let's look at how to unwrap WETH.
Unwrapping is the process of burning the wrapped token into its original form. Hence, when you unwrap WETH, it gets converted into ETH and deposited into your wallet.
There are multiple ways to unwrap Ether:
We’ll be using the third option for unwrapping our ETH. Following are some prerequisites to consider:
To unwrap wrapped tokens, please follow the steps mentioned below:
Once you’ve processed your request, click on Confirm to send the original asset (ETH) into your wallet.
Although the wrapping and unwrapping steps above are discussed for MetaMask, you can use other wallets based on your convenience.
WETH has a straightforward objective: Enable native ETH holders to carry out transactions via the Wrapped Ether token. After all, Ethereum’s DeFi ecosystem will only grow larger since more networks operate on it.
Wrapped tokens, such as WETH, create more compatibility across the different blockchains with their ERC-20 standard. Thus, it’s important to learn about WETH — and how to wrap and unwrap it — so that native ETH users can seamlessly perform transactions on the Ethereum blockchain.