… but what is WETH?

WETH is an ERC-20 token on the Ethereum blockchain that represents Ether (ETH) at a 1:1 ratio. Ether, as the native cryptocurrency of the Ethereum network, was created before the ERC-20 token standard was introduced and is not directly compatible with it. The ERC-20 standard defines a set of rules for tokens running on Ethereum, allowing them to interact with other tokens and decentralized applications in a standardized way. WETH solves this problem by "wrapping" ETH in a smart contract that issues an equivalent amount of WETH tokens. This allows users to use their ETH in DeFi applications such as decentralized exchanges (DEXs), lending platforms, or liquidity pools that primarily operate on ERC-20 tokens. The process of "wrapping" ETH on WETH and "unwrapping" WETH back on ETH is simple and can be done at any time.

Explore the history of WETH

The necessity for Wrapped Ether stems directly from the evolution of the Ethereum ecosystem and the growing popularity of the ERC-20 token standard, which was proposed in 2015 and quickly became the dominant standard for new tokens issued on Ethereum. Ether (ETH) itself, as the network's original cryptocurrency, did not meet this standard, making it difficult to use it directly in many emerging DeFi applications that were designed to support ERC-20 tokens. The first concepts and implementations of "wrapped" Ether began to emerge with the development of the first decentralized exchanges and other DeFi protocols in 2017-2018. There is no single, central creator of WETH in the sense that many other crypto projects do. The WETH standard contract is open source and has been implemented by the Ethereum developer community as a practical solution to the compatibility problem. Its adoption has been organic, driven by market need. Over time, WETH has become the de facto standard and is widely accepted and used across the DeFi ecosystem on Ethereum and other EVM-compatible networks. Understanding the history of such foundational elements of DeFi infrastructure is important, and materials like those available on the Webinar Academy platform can help.

WETH Technology Analysis

Technologically, WETH is a smart contract deployed on the Ethereum blockchain that meets the ERC-20 standard. The key aspects of its operation are:

1. Packaging process A user who wants to swap ETH for WETH sends their ETH to the WETH smart contract. This contract locks the received ETH and in return issues an equivalent number of WETH tokens to the user's address. For example, sending 1 ETH to a WETH contract results in receiving 1 WETH.
2. Unpacking process A user who wants to get their ETH back sends WETH tokens back to the same smart contract. The contract burns the received WETH and releases the previously locked, equivalent amount of ETH to the user's address. Sending 1 WETH to the contract results in receiving 1 ETH.
3. ERC-20 compliant As an ERC-20 token, WETH has all the standard functions of this interface, such as transfer(), approve(), transferFrom(), totalSupply(), balanceOf(). This enables WETH to be easily integrated with other DeFi smart contracts and applications that expect tokens that meet this standard.

The WETH smart contract is relatively simple and has been audited by the community multiple times. Its main task is only to store the deposited ETH and manage the issuance/burn of WETH tokens, which minimizes the attack surface. Transparency of operations is ensured by the nature of the public Ethereum blockchain – all wrapping and unwrapping transactions are publicly visible. WETH does not have its own governance mechanism or transaction fees (other than the standard gas fees on Ethereum for interacting with the contract). The availability of WETH on various investment platforms makes it easier to participate in the DeFi ecosystem.

WETH vs. other cryptocurrencies

When comparing WETH to other digital assets, it is important to refer to its relationship with native Ether (ETH) in the first place. WETH is not a separate cryptocurrency with independent value; it is merely a "wrapped" form of ETH, created to ensure technical compatibility. The value of 1 WETH is always equal to the value of 1 ETH. The main difference lies in their functionality in the context of the ERC-20 standard. With respect to other ERC-20 tokens, WETH acts as a bridge, allowing the value of ETH to be used seamlessly in the DeFi ecosystem. Many DeFi protocols, such as decentralized exchanges or lending platforms, require users to provide liquidity or collateral in the form of ERC-20 tokens. With WETH, Ether can fulfill this role. Compared to other "wrapped" assets such as Wrapped Bitcoin, WETH refers to the native asset of the same network (Ethereum), while WBTC represents an asset from another blockchain (Bitcoin) on Ethereum. The WETH mechanism is much simpler and more decentralized than most wrapped assets from other networks, as it does not require external custodians. Understanding these distinctions is crucial, and online training can provide the necessary knowledge. For many people , the Webinar Academy training platform is a source of reliable information about the functioning of DeFi.

Analysing the future of WETH

The future of WETH is inextricably linked to the future of Ethereum and its DeFi ecosystem. Until Ether becomes natively compatible with the ERC-20 standard, WETH will continue to play a key role as an essential piece of infrastructure. The rise in popularity and complexity of DeFi applications on Ethereum is likely to maintain and even increase the demand for WETH. The development of layer-two solutions on Ethereum, such as Optimism, Arbitrum, or Polygon, also uses the concept of WETH, which demonstrates the fundamental importance of this mechanism. No significant changes are expected in the core functionality of WETH, as its current form is simple, secure, and effective in doing its job. Possible innovations could include optimizing the gas costs associated with interacting with the WETH contract or the development of new token standards that could affect how it interacts with native ETH in the future. For those who want to stay up-to-date on the evolution of standards and tools in the Ethereum ecosystem, Webinar Academy can offer up-to-date analysis and materials.

Wrapped Ether is a fundamental and essential tool in the decentralized finance ecosystem on Ethereum. It enables the network's native cryptocurrency, Ether, to fully integrate with applications and protocols based on the ERC-20 token standard. With a simple and secure wrapping mechanism, WETH provides liquidity and interoperability that are crucial for the functioning of decentralized exchanges, lending platforms, and many other innovative DeFi solutions. Its role, although technical, cannot be overestimated for the development and availability of decentralized financial services. Despite Ethereum's continued evolution, WETH is likely to remain a key component of its infrastructure for years to come. Understanding WETH is essential for anyone who wants to actively participate in the DeFi ecosystem, and online training and a dedicated training platform can be a valuable resource.