# Wrapped Tokens > Wrapped tokens are digital tokens that represent assets from another blockchain, typically track their value at a 1:1 ratio, and enable their use on networks where the original assets are not native. - Canonical URL: https://iq.wiki/wiki/wrapped-tokens - Categories: Glossary - Created: 2026-10-13T14:16:36.979Z - Last updated: 2026-10-13T14:16:36.979Z - Source: IQ.wiki — the world's largest blockchain and crypto encyclopedia (https://iq.wiki) --- **Wrapped tokens** are digital tokens that represent [cryptocurrencies](https://iq.wiki/wiki/cryptocurrency) from another [blockchain](https://iq.wiki/wiki/blockchain), allowing those assets to be used on networks where they do not exist natively. They are generally designed to track the represented asset at a 1:1 ratio and, in many arrangements, can be redeemed for it.[\[1\]](#cite-id-hyyyi09tnu)​[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ ## Purpose and Interoperability A [cryptocurrency](https://iq.wiki/wiki/cryptocurrency) normally operates within the [blockchain](https://iq.wiki/wiki/blockchain) on which it was issued. A wrapped token represents that cryptocurrency on a different blockchain and follows the destination network’s token standards. This can make an asset usable in applications, exchanges, lending protocols, and [liquidity pools](https://iq.wiki/wiki/liquidity-pool) that are not directly compatible with its native network.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ Wrapped tokens are often used to bring assets into [decentralized finance (DeFi)](https://iq.wiki/wiki/defi), where they may be traded, supplied to liquidity pools, used as loan [collateral](https://iq.wiki/wiki/collateral), or used in lending, borrowing, and yield-generating services. They can also support cross-chain transfers and, in some cases, wrapping non-fungible tokens (NFTs) for use on other platforms.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​[\[1\]](#cite-id-hyyyi09tnu)​ A wrapped token is distinct from a [stablecoin](https://iq.wiki/wiki/stablecoin), although both may use reserves to support a peg. A wrapped token represents a particular underlying cryptocurrency, while the two are different types of assets.[\[1\]](#cite-id-hyyyi09tnu)​ ## Issuance and Redemption Cross-chain movement commonly uses a [blockchain](https://iq.wiki/wiki/blockchain) bridge, software that facilitates transfers of data and digital assets between networks. In a custodial arrangement, the user sends the native [cryptocurrency](https://iq.wiki/wiki/cryptocurrency) to a custodian, which holds it in reserve and issues an equivalent amount of wrapped tokens on the destination blockchain. The reserve is intended to match the circulating wrapped-token supply and support redemption at parity.[\[1\]](#cite-id-hyyyi09tnu)​[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ To reverse the process, the wrapped tokens are returned to the custodian and burned, and the corresponding native asset is released from reserve. This mint-and-burn process is intended to keep the wrapped supply aligned with the underlying assets held for redemption.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​[\[1\]](#cite-id-hyyyi09tnu)​ Custody arrangements vary. A custodian may be a centralized entity, a group of custodians, a [smart contract](https://iq.wiki/wiki/smart-contract), or another reserve manager. In some systems, a [decentralized autonomous organization (DAO)](https://iq.wiki/wiki/dao) manages the addition and removal of custodians and merchants.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ ## Examples ​[Wrapped Bitcoin (WBTC)](https://iq.wiki/wiki/wrapped-bitcoin-wbtc) represents [Bitcoin (BTC)](https://iq.wiki/wiki/bitcoin-btc) on [Ethereum](https://iq.wiki/wiki/ethereum). It is an Ethereum [ERC-20](https://iq.wiki/wiki/erc-20) token backed by BTC held in reserve, allowing [Bitcoin](https://iq.wiki/wiki/bitcoin) holders to use a representation of their asset in Ethereum applications, including DeFi services.[\[1\]](#cite-id-hyyyi09tnu)​[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ In the described WBTC process, a merchant sends BTC to a custodian, which mints the corresponding WBTC on Ethereum. For redemption, the merchant requests that the custodian burn the WBTC and release BTC from the reserve; on-chain proof of the BTC reserve is also described.[\[2\]](#cite-id-74mphuv0l4)​ ​[Wrapped Ether](https://iq.wiki/wiki/wrapped-etherfi-eth-weeth) (WETH) serves a different compatibility purpose. Because ETH is not an ERC-20 token, WETH represents ETH in an ERC-20-compatible form so it can interact with applications built around that standard.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ ## Benefits and Limitations Wrapping can give assets access to applications and markets on other [blockchains](https://iq.wiki/wiki/blockchain), potentially expanding their liquidity and allowing holders to use them without selling the native asset. It may also let developers and users access networks that offer faster transactions or lower costs than the asset’s original network.[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​[\[1\]](#cite-id-hyyyi09tnu)​ A wrapped token represents an asset’s value on another network; it does not itself transfer the original asset’s native operation to that network. Custodial models depend on the custodian and reserve arrangement, creating trust dependencies and potential points of centralized control. Wrapping and redemption can also expose users to smart-contract vulnerabilities, transaction fees, [slippage](https://iq.wiki/wiki/slippage), and the technical complexity of using multiple blockchains. Regulations for wrapped tokens vary by jurisdiction and continue to develop.[\[1\]](#cite-id-hyyyi09tnu)​[\[2\]](#cite-id-74mphuv0l4)​[\[3\]](#cite-id-j33npptvtd)​ Wrapped tokens are one approach to interoperability in an ecosystem without a universal blockchain. Uphold has suggested that more advanced cross-chain communication could eventually make them unnecessary.[\[1\]](#cite-id-hyyyi09tnu)​