TL;DR

Wrapped Ether (WETH) is a token pegged to Ether (ETH). WETH is used in several platforms and DApps that support ERC-20 tokens. While ETH is used to pay for network transaction fees, its functionality is not the same as an ERC-20 token.

You can easily convert ETH to WETH through a process called wrapping. You can also convert WETH back to ETH at any time. The wrapping and unwrapping process follows a 1:1 ratio. This means there are no additional fees other than transaction fees.

You can manually wrap ETH by interacting with the WETH smart contract which will hold the ETH and give back the exact same amount of WETH.

Ethereum’s DeFi ecosystem is large and using WETH will provide more opportunities for staking and investment. There are many versions of WETH, but some are more popular than others. You can even find wrapped ETH on other blockchains that can be used in their ecosystem. Popular uses for WETH include trading NFTs, providing liquidity to liquidity pools, and crypto lending.

Introduction

If you are using Ethereum, most of the tokens traded and invested in tend to use the ERC-20 token standard. The use of this technical standard has become a popular choice for Decentralized Applications, wallets, and projects, as it offers practicality for most users. However, this has created problems for Ethereum’s native coin, Ether.

Ether doesn’t follow the same rules as ERC-20 tokens, but there is a demand for its use in ERC-20 DApps as well. Wrapped Ether is a solution to this problem and you may have seen it before. Let’s take a look at why WETH is a powerful tool for investors and holders in so many projects and DApps.

Apa itu wrapped Ether (WETH)?

WETH is an ERC-20 token on Ethereum that is pegged to the price of Ether (ETH). While Ethereum’s native token (ETH) can be used to pay gas fees, WETH cannot. However, WETH has a wider range of uses than ETH and is very popular in the Decentralized Finance (DeFi) ecosystem. MetaMask, TrustWallet, and almost every wallet on the Ethereum network will support WETH. Let’s explore some of its uses.

Why do we need to wrap ETH?

At first glance, the reason for a token like WETH may seem confusing. Don’t we already have ETH on the Ethereum blockchain? The first thing to understand is that not all tokens on Ethereum are technically equal. The network allows developers to create new rules and standards for cryptocurrencies.

One example is the ERC-721 format that produces Non-Fungible Tokens (NFTs). This format has a very different function than Ether or ERC-20 tokens. Developers have a lot of freedom to customize when creating these digital assets. So, while ETH can be used to pay gas fees on Ethereum, it can only be used in certain DApps.

Most DeFi DApps now accept ERC-20 tokens for investment and staking opportunities. If we want to add ETH to a liquidity pool or use it as collateral, it is much easier to have it in the ERC-20 version. This provides the greatest compatibility across blockchains and saves time in developing smart contracts.

How to wrap Ether (ETH)?

The process of generating WETH is quite simple. You send ETH to a smart contract which then gives you WETH in return. This means that all WETH created is fully backed by ETH reserves. Your ETH is locked in the smart contract and can be exchanged back for WETH at any time. When the ETH is returned, the contract will burn the WETH that was given.

To wrap ETH, you can interact directly with the WETH smart contract, causing it to take the ETH and credit your wallet with WETH at a 1:1 ratio (you still have to pay the transaction fee). Converting back will require another smart contract interaction, but the process is largely the same.

However, it is much easier to swap other tokens for WETH using a crypto exchange. Let’s see how you can swap ETH for WETH using the Uniswap DEX or directly through the Metamask wallet.

Wrapping ETH on Uniswap

1. Open Uniswap, then connect your wallet. Make sure that Ethereum is also selected as your network.

2. Select ETH in the top field and WETH below. If you click [Select a token], you will see WETH above the list.

3. Enter the amount of ETH you want to convert to WETH, then click the [Swap] button.

4. You will now need to confirm the transaction in your crypto wallet. Don’t forget that you will also need to pay gas fees, so make sure you have some extra ETH. Make sure that the transaction details are correct and click [Confirm].

5. You now just need to wait for the transaction to be confirmed on the blockchain. The waiting time will depend on the current network traffic. If you are in a hurry, you can expedite the transaction (i.e., pay a higher fee) to get it confirmed faster.

Wrapping ETH in MetaMask

1. Open your MetaMask wallet, then make sure your network is [Ethereum Mainnet]. Next, click [Swap].

2. In the [Swap to] field, search for WETH.

3. Enter the amount of ETH you want to swap, then click [Review Swap].

4. You will now see a quote showing the conversion rate (it should be 1:1). Click [Swap] to complete the transaction.

How to unwrap Ether (WETH)?

As mentioned earlier, you can manually unwrap your Ether by interacting with the smart contract. However, it is easier and safer to swap WETH for ETH. To do so, follow the previous Uniswap or MetaMask instructions, but make sure that you are converting from WETH to ETH. You can also use Binance to convert WETH.

1. Go to Binance Conversion & OTC Portal. Select WETH in the [From] field and ETH in the [To] field, then click [Preview Conversion].

2. You will now see the trade details. Make sure to confirm them before accepting the swap. Note that Binance does not allow you to swap ETH for WETH using this method.

Can you wrap ETH on other blockchains?

Other wrapped versions of ETH exist on major blockchains that increase ETH interoperability. For example, wrapping ETH on BNB Smart Chain (BSC) allows you to trade or use WETH within the BSC DeFi ecosystem. To do so, you will need to withdraw ETH from Binance or another exchange to a BSC wallet. Make sure that your exchange supports converting from ETH to WETH before making a withdrawal.

Alternatively, you can use a bridging service. There are third-party DApps that take crypto and store it on the origin blockchain, then mint wrapped tokens at a 1:1 ratio on the destination blockchain.

Bridging tokens often works, but be aware that moving tokens between blockchains can be risky. There have been cases where smart contracts of some bridges have been compromised. If you want to bridge wrapped Bitcoin, wrapped Ethereum, or other tokens, do your research on the platform thoroughly before using a bridging service.

How does wrapped ETH stay at the same price as ETH?

The key to maintaining WETH’s peg to ETH is its 1:1 convertibility. If WETH is cheaper, people will buy it and convert it to the more expensive ETH to make a profit. This will increase the demand for WETH and, therefore, its price. If WETH is more expensive, people will buy ETH and convert it to WETH to sell, increasing the supply of WETH and lowering its price. This principle of supply and demand ensures that the peg remains relatively stable.

Which DeFi applications can I use with WETH?

Ethereum has many DeFi DApps to explore that can accept ERC-20 tokens. One option is to add WETH to a liquidity pool available on a Decentralized Exchange (DEX) like Uniswap. Once you provide liquidity, you will start collecting fees from users who swap using the pool. However, impermanent loss is always a possible risk that can cause the amount of tokens deposited to decrease. Using a pool with a larger amount of liquidity will mitigate this risk.

You can also start lending WETH on platforms like Aave. Other users can borrow your tokens, but must provide collateral to cover their loans first. In return, you receive interest until you decide to remove the deposit.

Conclusion

Ethereum has one of the oldest and most developed DApp ecosystems ever. This makes WETH a necessity, as most ETH holders want to use their ETH in DeFi projects. If you decide to start experimenting with WETH, we recommend purchasing it with ETH or other tokens as it is simpler and easier than interacting with smart contract wrapping.