Chapter 11

ETH vs. WETH

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ETH vs. WETH

There is no big difference between ETH and WETH because the latter is simply a “wrapped” version of the former. In cryptocurrencies, a “wrapped” token is simply an empty vessel that contains the original asset. The purpose of wrapping a token is to give it interoperability or the ability to transfer tokens from one blockchain to another.

WETH follows the ERC-20 standard, while ETH does not. WETH was created because ETH was not feasible to be used for various DeFi applications. Thus, wrapping the ETH token in an ERC-20 standard meant it could easily be used across different applications, and also give users the ability to create their own versions of tokens for their applications.

WETH is equivalent in value to ETH, meaning there is no price difference. So why can’t ETH be used like WETH? It’s because ETH was developed before the ERC-20 standard, which is a standard set of rules that every token with that standard follows. It allows for easy interoperability between tokens, which gives developers more flexibility to integrate other tokens into their contracts.

How does WETH work?

Now that we understand the difference between ETH and WETH, let’s understand how wrapped tokens work. First, if you need to convert ETH to WETH, most of the exchanges can do the swap, but keep in mind you will be paying gas fees for the transaction. If you wanted to swap it back, this would be the same process backwards (with gas of course).

The same principle applies to other chains as well, such as BNB and WBNB, MATIC and WMATIC, where the native network token has to be first wrapped to facilitate swaps with other tokens in a decentralised manner.

Many Ethereum-based applications use WETH in place of ETH to facilitate the direct and decentralized peer to peer trading between ether in “wrapped form” and ERC-20 tokens under the same technical standard.

Do we need wrapped tokens?

In short, yes! For a fully decentralized space to exist and function with ease, we need to be able to use products on different networks seamlessly, just like you are able to transfer USD to CAD, or from a domestic bank to an international bank as long as both entities support it. While this is relatively easy with centralized third parties involves (ie. banks), it becomes far more challenging using a decentralized network.