Wrapped Tokens - Crypto Academy / S4W6 - Homework post for pelon53.
Hello,
I want to thank dear professor @pelon53 before I start my assignment. Today's lesson was very educative as always.In today's lesson, we learned about Wrapped Coins. We learned about what they are used for, how they are produced, what they are.
1.- Name at least 2 Blockchains that use the Wrapped BTC, excluding Ethereum, and show screenshots. Explain.
Although the pioneer of the Wrapped Bitcoin technology was the Ethereum blockchain, other blockchains followed over time. Huobi and Binance blockchain examples are detailed below.
A blockchain network using a Wrapped coin is Huobi. The wrapped Bitcoin used on this platform is named Huobi Bitcoin (HBTC). It was published on the Huobi global on February 14, 2020. Huobi uses not only HBTC but also HBCH, HDOT, HFIL, HBSV, HLTC and HXTZ tokens in a wrapped form in the system it calls H-tokens.
The purpose of creating these tokens is to be able to use BTC or other mentioned H-tokens on the Huobi blockchain. We will describe HBTC here, but other H-tokens are used for the same purpose. If you have BTC but want to make a transaction on the Huobi blockchain, HBTC comes into play here. HBTC acts as a bridge between two blockchains.
The advantages of using HBTC can be listed as follows. Processing time decreased from 1 hour to about 5 minutes. Fees are low as HBTC is on the ERC20 network. Users can control their investments on both the BTC and ETH network, which means it is reliable. Users can withdraw both HBTC-BTC and BTC-HBTC in Huobi Global.
You can perform BTC-HBTC swap by entering huobi.com. Select the exchange from the spot trading tab as in the image above. Then you can perform the swap by selecting balnace.
The Binance platform also has wrapped tokens. This platform has created its own wrapped tokens with a project called "Project Token Canal". Binace platform supports payment and withdrawal of BTC, BTC BEP2, and BTC BEP20 with this project.Btokens are also converted at a ratio of 1:1 just like Htokens. So the same price as the original token.
Btokens are also ERC20 tokens and types such as BBTC, BDOT, BFIL and BWRX.
Investors who want to convert their tokens to BBTC on Binance Smart Chain can convert their tokens on Binance.com. For this, users need to select the ERC20 network.
There is a bridge section on Binance. From here, you can easily connect the BTC you own on the Binance blockchain or vice versa. The system offers you low fee and security.
2.- What is the difference between the wETH of the Ethereum platform and the wETH of the TRON platform? Explain.
In order to explain the difference of wrapped ETHs on these two platforms, it would be more accurate to explain these tokens first.
ETH and ERC-20 tokens are not compatible as ETH was invented much longer than ERC-20 tokens.Due to this incompatibility, a need has arisen in Ethereum's ecosystem. Because exchange between ETH and other coins cannot be performed. From here, the tokens we call wETH are created. Here we can think of wETH as a stable token, but its price is indexed to Eth.You can also use dAPPs on the Ethereum Blockchain after performing the ETH/WETH conversion. After your transaction is finished, you can unwraped it without losing value.
To put it simply, wETH of Tron is a wrapped coin that has been converted to use Ethereum in the Tron ecosystem.BitGO and Tron jointly published wETH and the use of wETH as a TRC20 token was started. Users can use the decentralized applications of this blockchain by converting their Eth to wrapped ETH on the Tron blockchain, and trade on decentralized exchanges. Bitgo is responsible for the custody of this token.
As can be seen, the main differences between these two tokens are as follows;
- The wETH of the Ethereum blockchain is an ERC20 token. The Tron blockchain is the TRC20 token.
- The wETH of the Ethereum blockchain is the token of the Ethereum blockchain, the reason for its creation is that Etherium is not compatible with other ERC20 tokens.
- The wETH of the Tron blockchain is to bridge two different blockchains.
- Tron blockchain has collaborated with Bitgo for custody of wETH of the Tron, while the wETH of the Etherium blockchain is already a token of this blockchain.
3.- Make an investment of at least $5 of a Wrapped token. Explain the process with screenshots. You can use the JustSwap platform.
I used the Pancakeswap platform to answer this question. First, I linked my Trustwallet wallet to Pancakeswap.
Then I chose Exchange in the Trade tab.
On this page, we choose the coins we want to trade. In the From section, "BNB" is automatically selected. For the To section, it makes us choose the token we want to convert. Here I chose BTCB.
Then we enter the amount we want to convert. Here I entered the value of 0.0192 BNB (9.92 USD). The BTCB we will get is 0.000149629. After pressing the swap button, we convert BNB to BTCB .
After pressing the swap button, we need to confirm. A notification is sent to the wallet for this confirmation. Since I used Trustwallet during this process, I gave the confirmation from there.
After confirming in the wallet, the process is completed and a screen like the one below appears.
If you want, you can be directed tobscscan.com directly from here and examine the transaction details.
4.- Explain in detail the Wrapped token of the Blockchain TRON. Show screen capture.
We have seen in previous questions that Tron Blockchain supports wrapped tokens with wETH. I went to Tron blockchain's block explorer, tronscan.org, to find out what other tokens have wrapped versions on this blockchain. Here, when "wrapped" is typed into the search box, we see that there are mainly 4 wrapped tokens.
In addition to the wrapped coins of BTC and ETH, the coins of the two largest blockchains, we also see that this blockchain's own coins, BTT and TRX, also have wrapped tokens.
The important point here is that wETH and wBTC tokens are indexed to ETH or BTC through Bitgo, that is, with their assurance. This information is also given in Tronscan. These two tokens are pegged at a 1:1 ratio with their original coins. So if you want to use dApps or trade with BTC or ETH in the Tron ecosystem, you will need to convert these coins into wrapped versions.
The interesting thing is that the Tron ecosystem created a wrapped version of its own coin. We know that the Ethereum blockchain did, but there was an incompatibility between ERC20 tokens and ETH. Tron supports TRC20and TRC10 token standards. For this reason, the question arises of whether wrapped TRX is needed. However, even if it is not needed in today's technology, it may have been created with the future in mind. Tron blockchain has not collaborated with Bitgo as it is wETH and wBTC. Because it is already the product of the existing system itself.
It is a token created with the TRC 10 standard on the Tron blockchain network with BitTorrent (BTT). But it is compatible with TRC20 tokens. Here, the same interpretation we made for WTRX tokens is valid.
5.- What is coining a Wrapped token? What is burning a Wrapped token? What is its function? Create an example explaining the process.
Blockchains offer their users a decentralized environment. But each blockchain offers us this decentralization only on its own platform. However, there are currently many blockchains. But it is not possible to establish a connection between these blockchains. Due to the need to establish a connection between these blockchains, the concept of wrapped token entered our lives. With the Wrapped token, it is possible to bridge different blockchains. For example, if you can make a transaction on the Ethereum Blockchain with BTC, this is done through wrapped tokens.
Let's take a look at how wrapped tokens work. For example, a person plans to transact with BTC on the Ethereum blockchain. Then wBTC is needed. First of all, a custodian is needed. Custodian must hold the same amount of wBTC for each BTC. The trader sends BTC to the custodian and this custodian issues wBTC in the ETH network as much as the BTC he receives. If the trader wants to convert the wBTC back to BTC, he requests a burn to the custodian. In this case, BTCs sent to custodian are released. So the custodian is the one doing the wrapping and burning here.
So burning a wrapped token is to revert it to its original state. Once burned, wETH is converted to ETH and can only be used on the Ethereum Blockchain.Burning is quite important here. Because after burning, the same token is prevented from being used on both blockchains.
Let's take an example to explain it better. Trader A owns 1 Bitcoin. But the transaction it will do is available on the Ethereum blockchain. This is why Trader A needs wBTC. Here, too, the need for custodian arises. As Custodian, he chose Bitgo. In this case, Trader A sends 1 BTC to Bitgo. Bitgo blocks 1 BTC sent by Trader A. Trader A now holds 1 wBTC.
Trader A can freely use wBTC on the Ethereum blockchain. He can convert his remaining balance back to BTC after his transactions are finished. After notifying Bitgo of this request, Bitgo burns the remaining wBTC. Thus, double coin will not be created. Trader A can use his remaining BTC on the Bitcoin Blockchain.
Wrapped coins act as a bridge between blockchains. It is not possible to use the coin, which is normally the product of one blockchain, in another blockchain. But with the wrapped coin, this is achieved and it is possible to use ETH on the Bitcoin network and BTC on the Tron network. Wrapped coins are pegged at a 1:1 ratio with the original coin. Blockchains such as Ethereum, Bitcoin, Binance Smart Chain, Tron have supported these coins and included them in their ecosystems. In this way, they also increase liquidity. The process of reverting to its original form after creating a wrapped coin is also called burning. While creating these coins, custodians block the original coin so that both blockchains are not used, then release it after the transaction is over and burn the wrapped coin.
Best regards, Özge