Block Chain - Wrapped Tokens

Wrapped tokens are digital assets on one blockchain that represent assets from another blockchain. They enable cross-chain asset usage without moving the original asset directly.

The wrapping process typically involves locking the original asset in a smart contract or custody system and minting an equivalent token on the destination chain.

Wrapped tokens allow users to access decentralized applications, liquidity pools, and smart contracts across multiple ecosystems. This enhances capital efficiency and interoperability.

However, wrapped tokens introduce additional trust assumptions, particularly when custodial entities manage the locked assets. Smart contract vulnerabilities also pose risks.

Despite these challenges, wrapped tokens are widely used in decentralized finance to bridge liquidity between ecosystems.

They represent a practical, though imperfect, solution to blockchain fragmentation in the current multi-chain environment.