Crypto Noobs #23 - Understanding Wrapped Tokens

Welcome back to Crypto Noobs!

It's the most popular crypto educational series on the blockchain! Not really. Maybe. Who knows. We like to have fun here. If you've never read a Crypto Noobs post, it's a series where I show people how to do different things with cryptocurrency and blockchain. I'm just a regular dude that admittedly smokes too much and likes to be a complete degenerate with crypto. I'm no expert, I just like to spread knowledge. In the last issue, we took it back to the basics with what a cryptocurrency wallet is. Today we're here to take a deep dive into wrapped tokens and their use cases.

Understanding Wrapped Tokens

You might have come across the term wrapped tokens a time or 2, especially if you've ever used cryptocurrency. Even if you already know what they are, it never hurts to hear it from a different perspective. I'm just a nerd that wants to help people as much as possible. With more and more people coming into the cryptocurrency space, we're going to have more and more people that have never heard of these things. I feel it's important that there be outward-facing, easy to understand content for people to get familiar with different aspects of cryptocurrency.

I remember the first wrapped token I ever read about was Wrapped Bitcoin WBTC and my first thought was... What the hell is that? In simple terms, a wrapped token like WBTC is the native Bitcoin asset, but tokenized on a different blockchain. WBTC initially was created so that people could use Bitcoin on the Ethereum blockchain. Why would someone want to have BTC on the Ethereum blockchain, you may ask? There's a number of reasons.

I feel like we often have tunnel vision in this space, so I try to gear my content toward complete newbies. In the magical world of cryptocurrency, there's a ton of different blockchains that all work a little bit different (mostly). They all have their advantages and disadvantages, and everyone is free to use whichever one they choose.

The key here is to have assets that are interoperable between blockchains. BTC simply cannot be tossed into an Ethereum wallet. This is where token wrapping comes in.

The way token wrapping works is - you deposit the asset you want to wrap, and it's locked in a smart contract. Then a new tokenized version of the asset is minted on the target blockchain and transferred to your wallet. There's a number of different wrapping services that work on different blockchains as well.

For this example, let's look at the LEO token. LEO is the native token here on LeoFinance, which lives on the Hive Engine blockchain. There's not a ton of decentralized finance options on the Hive blockchain, so thanks to the LeoFinance team, we are able to wrap the LEO token and use it on the Polygon blockchain.

This is all done in a very simple interface via LeoBridge. Basically - you send LEO tokens from the Hive blockchain and receive pLEO on the Polygon blockchain. That pLEO on the Polygon blockchain can be unwrapped instantly at any time to receive your LEO back on the Hive blockchain.

LEO can aslo be wrapped onto BNB Chain and Ethereum via the bridge.

Wrapping tokens make moving assets between different blockchains easy. Before this existed, getting funds from the Bitcoin blockchain to the Ethereum blockchain was very difficult and required interacting with exchanges to sell BTC and buy ETH. With the emergence of decentralized finance protocols, we're able to do it all on our own in a permissionless way. By wrapping your BTC, you're able to move it to different blockchains like Polygon or BNB Chain.

This allows you to use your assets in different DeFi protocols like PolyCUB to provide liquidity and earn yield. Wanna use ETH for some trading but don't want to use the Ethereum blockchain due to insane fees? Cool - wrap it to WETH and use it on the Polygon blockchain to do your degen shit.

Even our native stable coin HBD here on Hive got a cross-chain upgrade with the launch of pHBD. This is Hive Backed Dollars on the Polygon blockchain. This gives us the ability to move HBD more freely and allows for easier use of the asset. Earn some HBD by creating some awesome posts on here? Cool. Wrap it to pHBD and pair it with some USDC, then throw it in the PolyCUB farm to earn 43% APY!

Just think of wrapped tokens as your favorite cryptocurrency upgraded with cross-chain capability. I hope I made that easy to understand. I don't want to keep going as this is getting a little lengthy, but I'd love to talk more about this in the comments!

Also - shout out to @shadowspub for the idea to dive into this topic. Make sure you guys stop by every Thursday at noon EST in the @dreemport Discord for #PYPT Pimp Your Post Thursday.

Thanks for reading! Much love.

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