You may have heard the term “wrapping” used in connection with certain cryptocurrencies, for example “wrapped BTC (wBTC),” “wrapped Ether (wETH),” and others. These wrapped cryptos are popular on DeFi platforms and EVM-compatible blockchains. But what exactly is wrapping and why would you want to do it? Here’s a brief overview of the ins and outs of coin wrappers.
What is a wrapped coin?
The term “wrapping” is a bit of a misnomer. It is not possible to alter a cryptocurrency once it has been minted. The smart contracts that mint each coin have preset functions that control what the coin can and cannot do. These smart contracts are immutable and therefore the coins are too.
Rather, wrapping is a form of crypto custody where a coin owner exchanges the original coin for a new coin with new features – the “wrapped” version of the original coin. A custodian (which could be an intermediary or an automated smart contract) keeps possession of the original coin and promises to give it back if and when the new coin is returned. So a wrapped coin is basically of stablecoin that is backed one-to-one by the original coin.
What are the benefits of wrapped coins?
One of the first uses for wrapped coins was to facilitate greater interoperability between blockchains. Interoperability, or the capacity of different blockchain protocols to interact and exchange value with each other, became a priority with the rise of Ethereum’s decentralized finance (DeFi) movement. Investors on multiple blockchains sought to put non-Ethereum-based assets to work in DeFi protocols.
Wrapping accommodates this need. For example, the Bitcoin network and Ethereum are separate blockchains, so their coins are incompatible. A user who owns bitcoin cannot spend it on Ethereum. This caused problems for both networks. Ethereum is stronger if it can tap liquidity from the Bitcoin network, while Bitcoin would be more popular if it could be used with the services available on Ethereum. Solving the problem makes bitcoin more useable (which increases demand and lifts the price of bitcoin) and Ethereum more powerful.
That said, interoperability is just one of the use cases for coin wrapping. Because the wrapped coin is issued using a new smart contract, wrapping can be used to add a wide array of new capabilities to existing coins.
Does Jurat wrap coins?
Yes. In addition to creating original cryptocurrencies we provide smart contracts that can accept any ERC-20 standard token on Ethereum and Polygon, and we are constantly adding other chains. We also partner with crypto custodians so that they can offer their customers Jurat wrapping services.
What is the benefit of Jurat’s wrapped coins?
Jurat wrapped tokens add judicial enforcement to the coins you already own and use. For example, our wrapped version of USDC (called “jUSDC”) has been used in federal court to transfer funds between litigants to pay settlements and judgments. The same features can protect users of any coin from theft, fraud, and mistaken payments.