TL;DR

Wrapped Ether (WETH) is a token pegged to Ether (ETH). WETH is used across multiple platforms and DApps that support ERC-20 tokens. Although ETH is used to pay network transaction fees, it does not have the same functionality as ERC-20 tokens.

You can easily convert ETH to WETH through a process known as wrapping. It is also possible to convert WETH back to ETH (unwrapping) at any time. Both wrapping and unwrapping follow a 1:1 ratio. In other words, there are no extra costs other than transaction fees.

You can wrap ETH manually by interacting with the WETH smart contract, which stores ETH and returns exactly the same amount of WETH.

Ethereum's DeFi ecosystem is large and WETH offers more staking and investment opportunities. There are many versions of WETH, but some are more popular than others. You can even find wrapped ETH on other blockchains to use in their ecosystems. The most common uses for WETH include trading NFTs, providing liquidity to liquidity pools, and lending cryptocurrencies.

Introduction

On the Ethereum network, most tokens for trading and investing use the ERC-20 token standard. The use of this technical standard has become a popular option for wallets, projects and Decentralized Applications, as it offers practicality for most users. However, this created a problem for Ethereum's native currency, Ether.

Ether does not follow the same rules as ERC-20 tokens, but there is a demand to use it in ERC-20 DApps as well. Wrapped Ether is the solution to this problem and you may have already come across it. Let's see why it has become a useful tool for investors and holders of so many projects and DApps.

What is wrapped Ether (WETH)?

WETH is an ERC-20 token on Ethereum, 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 use cases and is very popular in the Decentralized Finance (DeFi) ecosystem. Virtually every wallet on Ethereum supports WETH, including the MetaMask and TrustWallet wallets. Let's explore some of its use cases.

Why is wrapped ETH necessary?

At first, it may not be clear why a token like WETH exists. Doesn't the ETH token already exist on the Ethereum blockchain? Firstly, we must understand that not all tokens on Ethereum are technically equal. The network allows developers to create new rules and standards for cryptocurrencies.

An example is the ERC-721 format, which offers us Non-Fungible Tokens (NFTs). They work very differently than Ether or ERC-20 tokens. When creating these digital assets, developers have a lot of room for customization. Therefore, although ETH can be used to pay Gas fees on Ethereum, it cannot be used on all DApps.

Currently, most DeFi DApps accept ERC-20 tokens for investments and staking opportunities. To add ETH to a liquidity pool or use it as collateral, it is much easier to use the ERC-20 token version. This provides greater compatibility across the entire blockchain and saves time when developing new smart contracts.

What is the Ether (ETH) wrapping process like?

The process of creating WETH is simple - you send your ETH to a smart contract that gives you WETH in return. In other words, there are ETH reserves that support all the WETH created linked to them. Your ETH is locked in the smart contract and can be exchanged for WETH at any time. When you request the return of ETH, the contract burns the corresponding amount of WETH.

To wrap Ether, you interact directly with the WETH smart contract so that it receives your ETH and, in return, sends a balance of WETH to your wallet, in a 1:1 ratio (you still have to pay the fees transaction). The reverse conversion process requires another interaction with the smart contract, but it is practically the same procedure.

However, it is much easier to swap tokens for WETH using a cryptocurrency exchange. Let's see how to exchange your ETH for WETH using the Uniswap DEX or directly through your Metamask wallet.

Wrapping de ETH no Uniswap

1. Open Uniswap and connect your wallet. Make sure to select Ethereum as your network.

2. Select ETH at the top and WETH at the bottom. When you click [Select a token], you will see WETH above the list of tokens.

3. Enter the amount of ETH you want to convert into WETH and click [Swap].

4. Now you need to confirm the transaction in your cryptocurrency wallet. Remember, you also need to pay Gas fees, so make sure you have an extra ETH balance. Check the transaction details and click [Confirm].

5. Now just wait for the transaction to be confirmed on the blockchain. Waiting time depends on network traffic. If you're in a rush, you can speed up the transaction (i.e. pay higher fees) so it's confirmed faster.

Wrapping de ETH na MetaMask

1. Open your MetaMask wallet and make sure to select the [Ethereum Mainnet] network. Then click [Swap].

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

3. Enter the amount of ETH you want to convert and click [Review Swap].

4. You will see a quote with the conversion rate (which should be 1:1). Click [Swap] to finalize your transaction.

What is the Ether (ETH) unwrapping process like?

As mentioned previously, when interacting with a smart contract, it is possible to manually unwrap Ether. However, it is simpler and safer to swap WETH for ETH. To do this, follow our previous instructions regarding Uniswap or MetaMask, but make sure to exchange WETH for ETH. You can also use the Binance platform to convert your WETH.

1. Access the Binance Conversion and OTC Portal page. Select WETH in the [From] field and ETH in the [To] field and click [Preview Conversion].

2. You will see the operation details. Check them out before proceeding with the conversion. Note that Binance does not allow swapping ETH for WETH using this method.

Is it possible to wrap ETH on other blockchains?

There are other versions of wrapped ETH on major blockchains, which increases the interoperability of ETH. Using wETH on the BNB Smart Chain (BSC), for example, allows you to trade or use WETH within BSC's DeFi ecosystem. To do this, you will need to withdraw ETH from Binance or another exchange to your BSC wallet. Before withdrawing, confirm whether your broker supports the conversion of ETH to WETH.

Alternatively, you can use a bridging service. These are third-party DApps that receive cryptocurrencies and store them on the source blockchain and then issue wrapped versions of the tokens, at a 1:1 ratio, on the destination blockchain.

Generally, tokens generated by this bridging process work well, but be aware that moving tokens between blockchains can involve risks. There have been cases of platforms having their smart contracts compromised. If you intend to transfer wrapped Bitcoin, wrapped Ethereum or another token, carefully research the platform that offers the bridging service.

How does wrapped ETH maintain the same price as ETH?

The key to keeping the value of WETH pegged to ETH is its ability to convert at a 1:1 ratio. If WETH is cheaper, users buy WETH and convert it to ETH to make a profit. This profit opportunity generates an increase in demand for WETH and therefore the price also increases. If WETH is more expensive, people will buy ETH and convert it to WETH to sell and make profits. Therefore, there would be an increase in the supply of WETH and a consequent drop in its price. These supply and demand principles ensure that the pegging value remains relatively stable.

What DeFi applications can I use wETH with?

Ethereum has many DeFi DApps available with support for ERC-20 tokens. One option is to add WETH to a liquidity pool available on a Decentralized Exchange (DEX) like Uniswap. By providing liquidity, you earn fees from users who swap through the pool. However, there is always the risk of impermanent loss, which could cause a drop in the number of tokens deposited. Using a pool with greater liquidity will reduce this risk.

You can also offer loans of your WETH on a platform like the Aave protocol. Other users can borrow their tokens, but they must first provide collateral (collateral) to cover the loan amount. In return, you will receive interest until you withdraw your deposit from the platform.

Conclusion

Ethereum has one of the oldest and most developed DApp ecosystems on the market. This makes WETH a necessity as many ETH holders want to use their ETH tokens in DeFi projects. If you want to experiment with WETH, we recommend purchasing it using ETH or other tokens. It is a simpler and more convenient method than interacting with smart contracts in the wrapping process.