Wrapped Tokens - Crypto Academy / S4W6 - Homework post for pelon53.
WRAPPED TOKENS.
Wrapped tokens refers to tokens developed and pegged in value to an asset ( in this case another coin). For example, wrapped BTC is pegged to the value of bitcoin. In exchange, 1 wrapped BTC will equal 1 BTC.
Coin built on different platform cannot be integrated into another. Bitcoin for instance will not work on Ethereum Blockchain. To make Bitcoin work on Ethereum without changing it's value will require a kind of bridge. A token created as Bitcoin on Ethereum platform. ( Wrapped BTC) This tokens are usually created for interoperability purposes.
Wrapped BTC (wbtc) is an ERC-20 token developed on Ethereum Blockchain that is meant to be exchanged in place of BTC. The token is exchanged at 1:1 ratio. ( 1 BTC to 1 wrapped BTC)
The wrapped BTC is a way of bringing BTC to Ethereum Blockchain. The token is developed to provide a bridge between Bitcoin and Ethereum, so as to allow Bitcoin holders participate in DEFi projects.
Many defi projects and Blockchains has adopted the wrapped BTC as among the tokens for operation in it's ecosystem. Example are the Blockchain platforms listed below.
Q1.
>Name at least 2 Blockchains that use the Wrapped BTC, excluding Ethereum, and show screenshots. Explain.
1: SOLANA BLOCKCHAIN.
Solana is an open source Blockchain platform comparable to etheruem. Just like Etheruem, the blockchain is a place for decentralized finance (DEFi ), NFTs, games, etc.
The blockchain platform uses proof of stake and proof of history consensus mechanism. One of it's strong sides is scalability, solana Blockchain is capable of completing 700,000 transactions per second.
Solana Blockchain uses a cross chain bridge known as wormhole which allows for interoperability between coins developed on other Blockchains. With this wormhole, users can be able to lock in their ERC20 tokens which allows them to mint Solana program library tokens (SPL ). As wrapped BTC is an ERC-20 token built on Ethereum Blockchain, holders of BTC can add liquidity and participate in DEFi projects by converting their BTC to wrapped BTC.
2: TRON BLOCKCHAIN.
Tron is another blockchain that accepts wrapped BTC which equally allow BTC holders to participate in DEFi projects and add liquidity to the Blockchain. Just like Ethereum, Tron Blockchain is great for running smart contracts and creating dapps. Bitcoin holders can participate in money making DEFi projects like lending, staking and benefit from the interest that accrue. Instead of just allowing the money to remain dormant in a wallet, it can earn interest through these DEFi projects without changing the bitcoin value. That is where wrapped BTC comes in.
As at last year September, Bitgo, a company responsible for wrapped BTC partnered with Tron Blockchain and introduced wrapped BTC to Tron ecosystem. The Tron wrapped BTC is known as btctron. Using btctron Bitcoin holders can use it to send BTC to Tron ecosystem on 1:1 rating value for Bitcoin and btctron. They equally introduced wrapped Ethereum.
3: BINANCE BLOCKCHAIN.
Another Blockchain with wrapped BTC is the renowned centralized market place for cryptocurrencies binance. However, binance offers other money making opportunities.
Wrapped BTC on binance smart chain is created using bep20 standard.
Q2
What is the difference between the wETH of the Ethereum platform and the wETH of the TRON platform? Explain.
wETH of Ethereum platform.
As I have mentioned above, wrapped tokens are created for interoperability purposes. It a way of bring another coin to a Blockchain without affecting the value. One will therefore ask: why wrapped Ether on Ethereum Blockchain? Since ether is the native token of Ethereum, is there need for wrapped Ether?
The simple answer is that Erc-20 token standard are tokens for smart contracts and dapps just like ERC721 are for non fungible tokens. The standard represents a source code and algorithm on which developers can build smart contracts or dapps of choice and equally create a token for the internal operation of such dapps or smart contract. On the other hand, ether is a native token of Ethereum Blockchain and not a token created using the ERC-20 standard and therefore not compatible.
Take for example, markerDAO is a DEFi project built on Etheruem Blockchain. It supports lending and borrowing and other MM services. MarkerDAO has a token called marker. The token is an ERC-20 token.
Due to the incompatibly between the two tokens ( Ethereum and maker), for an Ether holder to participate in the DEFi offer of markerDAO will require exchanging Ether to maker in the exchange platforms. To avoid such protocol wrapped Ethereum is built to bridge the rift. With wrapped Ethereum, holders of Ether can participate in the DEFi projects.
wETHER on Tron platform.
Wrapped Ethereum on Tron Blockchain does same work as wrapped Ether on on Tron. It is a way of bringing Ethereum to Tron Blockchain. The difference is that while wrapped Ethereum on Etheruem Blockchain is built using Erc20 standard, wrapped Ethereum on Tron is built using Trc20 standard.
Trc20 is standard for smart contracts and dapps on Tron Blockchain. It is similar to Erc20 standard only that they are built on different Blockchain platforms.
DIFFERENCE BETWEEN WRAPPED ETHER ON ETHERUEM BLOCKCHAIN AND WRAPPED ETHERUEM ON TRON BLOCKCHAIN.
The major difference is on the standard on which they are built. Wrapped Ether on Etheruem is built on Erc20 standard while wrapped Ethereum on Tron is built on Trc 20 standard.
Q3
Make an investment of at least $ 5 of a Wrapped token. Explain the process with screenshots. You can use the JustSwap platform.
This assignment did not mandate the use of justswap, therefore, I have chosen to use binance Blockchain to demonstrate the investment. What I did is to buy BTC using USDT and then convert BTC to wrapped BTC.
I already have USDT, therefore I followed the process below.
Stage 1.
In the binance app, I went to "trades" , I selected "spot", then I chose the pair BTCUSDT.
stage 2:
This stage features the process of buying BTC in the BTCUSDT pair.
1• select spot
2• choose buy option.
3• select markets, ( this is done when one want to buy instantly.
4• choose 100% if you want to invest all. ( I am investing $13 worth)
5• click on buy to buy BTC.
stage 3:
In this stage, I converted my BTC worth to wrapped BTC. The wbtc can only be traded with BTC. I followed the process of buying BTC outlined above.
See image below:
Once done, we can check our wallet to see the wrapped BTC.
Q4.
Explain in detail the Wrapped token of the TRON Blockchain. Show screenshot.
Tron Blockchain just like is Ethereum counterpart is an open source platform for dapps featuring lots of DEFi projects and smart contracts. The scalability and the low rate of transaction fees sets Tron apart from Ethereum and on this basis many defi projects are ongoing in the Tron ecosystem.
I have already hinted about wrapped tokens above. Among the reasons why Tron hosts many wrapped tokens is for interoperability with other Blockchain coins whose holders are interested in the DEFi project of Tron.
Among the list of the wrapped token in the Tron ecosystem includes:
1: WRAPPED TRON (wTRX)
Trx is the standard token for transaction on tron ecosystem, however DEFi operations are built on Trc 20 standard. Just like in Ethereum Blockchain, Trc20 is a standard for dapps development and running of smart contracts. DEFi projects created using these standards may have a separate token for it's operation which is equally built using the Trc20 standard. Holders of Tron desiring to participate in any DEFi project can do that directly using wrapped Tron. The value of the wrapped Tron is pegged to the price of Tron.
WRAPPED BTT (wBTT)
BTT token is a token built for BitTorrent network, a platform that allows music and video enthusiast to monetize their content through peer to peer sharing formula. The token was built on Trc 10 standard. For holders to add liquidity and participate in DEFi projects requires wrapped BTT for easy access.
As as today, the price of BTT is $0.003724 and up to $2.88 million 24 hour volume.
WRAPPED BITCOIN AND WRAPPED ETHERUEM.
As has been discussed in this article, these tokens ( wbtc, wETHER) are pegged to the price of Bitcoin and Ethereum respectively. Just like Erc20, these tokens in Tron ecosystem are built using Trc20 standards. Bitgo company, a centralised body responsible for wrapped tokens ensures that the protocol for wrapped tokens are followed.
Q5.
What is to mint a Wrapped token? What is burning a Wrapped token? What is your function? Create an example explaining the process.
what is minting a wrapped token?
As we have discussed above, wrapped tokens are pegged to the value of the original currency or coin that it represents.
To mint wrapped token the original token is locked in a smart contract, an equivalent of the value of the crypto asset is created using standard for the smart contract ( Erc20, Trc20). The later is the wrapped token and can be used for the purpose intended within the ecosystem.
The wrapped token minting refers to the creation of the equivalent value of the original token that as to use it within the DEFi standard intended.
Difference in minting tokens vs wrapped tokens.
- Tokens of a cryptocurrency are minted based on the set algorithm for producing blocks. When a new block is produced, the reward for producing the block is a new minted tokens. Tokens are therefore minted at the finding of a new block.
- Wrapped tokens are minted automatically whenever a user chooses to lockup his original token to participate in DEFi projects. The value of his locked coin are created while his original token remain unharmed.
WHAT IS BURNING A WRAPPED TOKEN?
Burning a wrapped token refers to the process of liberating and redeeming the locked token.
Take for example, a user invested 1 BTC to a DEFi project, what it therefore means is that his 1 BTC will be locked and 1 wrapped BTC will be created for him so as to allow him do business in the ecosystem. To that effect, the investor still has his 1 BTC value but in a new token ( wrapped BTC). If his investment made profit or looses, the value will be maintained in wbtc. When he want to redeem his coin the current quantity of the wrapped BTC will be converted back to BTC. As at this point the wrapped BTC has no value anymore, because, it is simply a shadow of the main coin and therefore is burned out or taken out of circulation.
Burning wrapped coin is the process of taking the wrapped token out of circulation after it has been converted to the based coin.
WHAT IS THE FUNCTION OF THE WRAPPED TOKEN.
1• INTEROPERABILITY.
The main function and what inspired the creation of wrapped token is a way of allowing a coin created in a different Blockchain to work in another without affecting it's value. The wrapped token is like a connection rope linking a token of a Blockchain to work in another Blockchain.
2• ADDING LIQUIDITY.
Another good purpose it serves is that it adds liquidity to the DEFi projects and also the capitalization of the ecosystem.
3• LEADS TO FASTER TRANSACTION LOWER COST.
It saves time and cost using wrapped token than converting it on exchanges before transferring it to the native token of the project. With wrapped token, all these processes are made easy.
CREATE AN EXAMPLE EXPLAINING THE PROCESS.
EXAMPLE OF MINTING WRAPPED TOKENS.
Let's use as a case study, that 1 BTC is injected in a smart contract in Tron ecosystem. It implies that the smart contract will lock the 1 BTC and mint Trc 20 wBTC equivalent and in this case 1 wBTC. The Bitgo company responsible for wrapped BTC ensures that this protocol is observed.
When wbtc will be converted back to btc, the current value of the wbtc will become the new quantity of the BTC and the wbtc token will be burned out or sent to the eater addresses.
TAKEAWAY.
- Wrapped tokens are tokens created and pegged to another token. The value of the main token is same with the wrapped version. The wrapped version is usually built on a protocol that supports dapps and smart contracts like Erc20 and Trc20.
- The main goal is to provide DEFi enthusiast the ease to access of using the tokens from another blockchain in another thereby providing interoperability.
- The difference between wrapped Ethereum of Ethereum and those of Tron or binance Blockchain is the platform on which it is built. For example, wEther on Ethereum platform is built using ERC20 standard, those of Tron is built on TRc20 and binance is Bep20 standards.
USE OF IMAGE
images without source are from my binance app. other's are the writers work.
design app ref.
Imarkup app.
Add Text app.