What is Wrapped XRP (wXRP) and how does it work?

TL;DR (SUMMARY)

Wrapped XRP is an XRP-pegged token that can be used on blockchains other than the XRP Ledger. The wrapped asset is interchangeable at a 1:1 ratio with XRP held in reserve by a custodian that facilitates the wrapping and unwrapping of Wrapped XRP.

The price of Wrapped XRP is pegged to XRP due to arbitrage. When the price of Wrapped XRP is higher, traders wrap the cheaper XRP and then sell wXRP, which lowers its price. When the price of Wrapped XRP is lower, traders buy and unwrap wXRP, and sell XRP, increasing the price of wXRP. This creates a constant bond between the two tokens.

XRP wrapping allows you to use the DApp ecosystem of a different blockchain and diversify your portfolio on that chain. If you want to get started, you can purchase Wrapped XRP (wXRP) ERC-20 from Wrapped.com via Binance. wXRP reserves are managed by licensed custodian Hex Trust, and you can start wrapping XRP by registering an account on Wrapped. You can use wXRP to stake liquidity pools by providing it in a token pair on platforms like Uniswap and Sushiswap.

Introduction

A typical cryptocurrency wallet is likely to have coins and tokens on multiple blockchains. However, managing and investing all of these assets can be complicated, especially when blockchains are not interoperable. One way to overcome this obstacle is to use wrapped tokens to create a gateway between coins from one chain to another. While wrapped versions of Bitcoin (BTC) and Ether (ETH) are common to see on Decentralized Finance (DeFi) platforms and exchanges, we now have a new wrapped asset to work with: Wrapped XRP (wXRP).

What is Wrapped XRP?

XRP wrapping allows you to use XRP on blockchains other than its native XRP Ledger. For example, XRP wrapped on Ethereum would allow you to transfer, stake, and trade wXRP with Ethereum DApps and wallets.

Each wrapped token can be unwrapping and converted to the original XRP at a 1:1 ratio. The wrapped token is also linked to the price of XRP and reflects its price movements. The wXRP token symbol specifically refers to Wrapped XRP on Ethereum created by Wrapped. XRP can also be wrapped on other blockchains through alternative wrapping providers.

How does Wrapped XRP work?

To maintain its peg to XRP, each Wrapped XRP is backed by a single XRP in reserves. When users wrap their XRP, they typically send their coins to a smart contract that provides the wrapped tokens. XRP is stored and then returned when someone else unwraps your wrapped token.

This ability to freely convert between Wrapped XRP and XRP keeps the peg, just like BUSD and the US Dollar (USD). When the price of Wrapped XRP falls below the price of XRP, traders buy Wrapped XRP cheaper and unwrap to sell XRP. This arbitrage increases the demand for Wrapped XRP and reduces its supply, increasing its price until it evens out. If Wrapped XRP rises above the price of XRP, traders wrap XRP to sell. This action increases the selling pressure and supply of Wrapped XRP, driving its price down until it evens out.

Why should you wrap XRP?

XRP wrapping offers several advantages for both XRP holders and users on the target blockchain:

1. Wrapping allows access to DeFi protocols and DApps on other blockchains. For example, Ethereum has a huge and well-developed DeFi ecosystem, and XRP holders can stake and use their tokens in new ways. This benefit creates even more use cases for XRP.

2. Investors who only use the Ethereum blockchain can diversify their portfolios with XRP. Managing assets across multiple blockchains takes time and often requires different cryptocurrency wallets. XRP is a popular large-cap coin, and wrapping will attract a new audience who can access the coin natively on their chosen blockchain.

Who are Wrapped and what is Wrapped XRP (wXRP)?

Wrapped is a blockchain project that provides audited wrapping services on various blockchains and currencies. The team is made up of Tokensoft and its custodians (Anchorage, Hex Trust and Coinmetro) who manage the reserves necessary to guarantee the wrapped tokens.

Wrapped already manages a basket of wrapped tokens and has offered Wrapped XRP ERC-20 on Ethereum since December 2021. wXRP reserves are held by Hex Trust, a licensed and insured custodian in Asia, and you can easily trade the token on Binance.

How to wrap XRP and unwrap wXRP?

If you want to wrap XRP or unwrap wXRP, you will need to create a Wrapped account using this Typeform. Wrapped will then contact you to give you more details on how you can start converting your XRP and wXRP.

What DeFi applications can I use wXRP with?

If you're looking to invest your wXRP, Ethereum has a wide range of DeFi DApps to explore. You can join or create a liquidity pool with a wXRP pair on almost any Decentralized Exchange (DEX). By providing liquidity, you can start earning commissions from users who swap using the pool.

However, do not forget that impermanent loss can lead to a decrease in your deposited funds if the price rate of the pair changes. One possibility is to stake through SushiSwap on its wXRP/wETH and wXRP/USDC pairs. Using an established pool with greater liquidity can reduce the risk of impermanent loss. Uniswap also has running pools that you can join with wXRP and another token in a pair.

Conclusion

Token wrapping is an excellent step to improve cross-chain functionality and interoperability. If you are an Ethereum DeFi fan, you now have the opportunity to experiment with holding and investing in XRP. If you are an XRP holder, there are a wealth of opportunities to explore now that you have access to the Ethereum ecosystem. Regardless of which group you belong to, be sure to use a trusted wrapped token that is auditable.