What is A Binance Wrapped Token?
A Binance Wrapped Token is a type of cryptocurrency token that represents a digital version of another cryptocurrency, but it operates on the BNB Chain. These tokens are called "wrapped" because they are essentially a BSC-compatible version of another asset.
Concept of Wrapped Tokens
A wrapped token is a cryptocurrency token pegged to the value of another crypto asset. These tokens are created to solve the problem of interoperability between different blockchains. By wrapping a token, you can use it on a blockchain that it wasn’t originally designed for.
Binance Wrapped Tokens
In the context of Binance, wrapped tokens are cryptocurrencies from other blockchains that have been wrapped to be compatible with the BNB Chain. This enables these tokens to be used within the BSC ecosystem, which includes decentralized applications (DApps) and decentralized finance (DeFi) platforms.
How They Work
When a token from another blockchain (like Bitcoin or Ethereum) is "wrapped" for use on the BNB Chain, it is converted into a BEP-20 token. This allows the original asset to be used in the BSC ecosystem, accessing its DeFi applications and services.
To create a wrapped token, the original token is locked in a digital vault or a smart contract. In exchange, an equivalent amount of the wrapped token is minted on the BNB Chain. For instance, wrapping Bitcoin (BTC) creates Wrapped Bitcoin (WBTC)on the BNB Chain, following the BEP-20 standard, and can be used just like any other BEP-20 token on the BNB Chain. The value of the wrapped token is pegged to the original token.
Advantages
Interoperability
They allow for the use of non-BNB tokens in the BSC ecosystem, thus increasing interoperability between different blockchain networks.
Liquidity
By bringing external assets to the BNB chain, wrapped tokens help increase the liquidity on Binance’s platform.
Participation in DeFi
Holders of other cryptocurrencies can participate in BNB’s DeFi ecosystem without having to sell their existing assets.
Examples
Examples of Binance wrapped tokens include Wrapped Chainlink (LINK), Wrapped Polygon (MATIC) and Wrapped Aave (AAVE) on the BNB Chain.
In summary, Binance Wrapped Tokens are a solution to enable the use of various cryptocurrencies on the BNB Chain, enhancing the functionality and liquidity of the BSC ecosystem. However, users should be aware of the risks associated with wrapped tokens, including trust in custodians and smart contract vulnerabilities.