Simply put, Ether (or ETH) is the native token for the Ethereum blockchain. It is used, among other things, to pay transaction fees (i.e. gas fees) for transactions executed on the Ethereum blockchain.
However, ETH was built before the ERC-20 standard and therefore does not conform to that set of conditions.
It comes wrapped Ether (WETH), which is used to trade directly with other crypto tokens that comply with the ERC-20 standard.
Tokens that comply with these standards are interoperable and can be used in transactions on ERC-20 compliant blockchains.
ETH must be converted to WETH if the holder wishes to use ETH in ERC-20 compliant decentralised applications (DApps), blockchains and decentralised autonomous organisations (DAOs). It must also be converted to WETH if the holder wishes to use it in conjunction with other tokens.
In essence, WETH provides more utility to ETH holders without the ETH losing value when it is wrapped in a smart contract and minted in WETH.
That said, steps are being taken to update Ethereum’s codebase to conform to ERC-20 standards, essentially making WETH a thing of the past.
Check out our guide to Wrapped Ethereum for more information.
BENEFITS OF USING WETH
There are several advantages of using WETH.
It is interoperable with other ERC-20 cryptographic tokens. Since WETH can only be minted by a custodian, an entity that guarantees its value (e.g. smart contract, dApp, DAO), WETH has higher liquidity than native tokens.
Another benefit of using WETH is that it has improved security because its custodians generally only use secure exchanges. In addition, you have more control over your cryptographic tokens because the custodian keeps the private keys in a secure location.
Finally, WETH has faster transaction speeds and lower transaction fees relative to the unwrapped version of the token.
CONS OF USING ETH
WETH also has some disadvantages. Custodians are required to wrap and unwrap ETH. Therefore, if there are any problems with the custodian’s operations, those problems may affect the custodian’s minting and burn process.
In addition, reliance on a custodian to mint and burn tokens leads to centralisation. This centralisation can be problematic and contradicts the point of a decentralised currency. For example, there could be US $3 billion worth of WETH on the ethereum blockchain, but it could all be held/controlled by one company.
Finally, minting and wrapping ETH requires paying gas fees, which are paid for minting and burning, which are not a small amount and can also cause slippage.
HOW DOES WRAPPED ETHEREUM WORK?
It is important to remember that the ERC-20 standard for crypto tokens was created after the ETH token was created for the Ethereum blockchain. The Ethereum token does not comply with ERC-20 standards, so it cannot be used with ERC-20 compliant tokens.
The process to change ETH to ERC-20 compliant tokens would be too costly and disruptive to the Ethereum blockchain. Therefore, it is better for ETH to be converted to WETH and then used in ERC-20 compliant dApps, smart contracts and blockchains.
When converting ETH to WETH, a smart contract mints a WETH token that is backed by the ETH token that is sent for the transaction. The private key for the ETH token is kept secure by the custodian that mints the WETH and ensures that the WETH has the same value as its underlying ETH token.
In addition, the smart contract structures the WETH so that it is compliant with ERC-20 standards and can be used with other ERC-20 compliant software and programs.
Ultimately, WETH can be used to pay gas tariffs, make payments, trade on decentralised exchanges (DEX) and anything else that can be done with any accepted cryptographic token.
In addition, WETH can be used as a native token on any ERC-20 compliant blockchain and DApps. That means that WETH holders pay less and lower transaction fees, in addition to having faster transactions than ETH holders. The reason is that ETH holders have to exchange their ETH for tokens that can be accepted by other blockchains and their related dApps.
HOW DO YOU CONVERT ETHEREUM TO WRAPPED ETHEREUM?
If you have ETH, you can wrap it and get ETH by simply exchanging ETH to WETH.
Before that, you will need to have some ETH in a wallet, such as MetaMask.
Next, you will need to connect your wallet (in this case, MetaMask) to an Ethereum-based DEX, such as Uniswap.
Perform the following steps to convert your ETH to WETH:
In your Chrome browser, log in to your MetaMask account and install the browser extension.
1. Go to https://app.uniswap.org/#/swap
2. Connect your wallet
3. Select ETH for the top asset and WETH for the bottom asset (in the image below)
4. Select the amount of ETH you wish to wrap
5. Click on adjust
6. A MetaMask pop-up notification will appear, showing the estimated gas fees and the total amount of the transaction.
7. Click confirm and voila, you’ll have WETH in your wallet in no time.
Another popular use case for WETH lately is on OpenSea, the largest secondary marketplace for non-fungible tokens (NFT). Check out their guide on how to wrap ETH on OpenSea here.
HOW TO UNWRAP WETH?
If you have WETH, you can unwrap it and get ETH. After unwrapping it (aka burning it), you get the original ETH back. The burned WETH is returned as ETH and deposited into the crypto wallet of the former WETH holder.
Just like wrapping ETH, you will need to have a wallet, such as a Metamask account. Simply perform the same steps above, but choose WETH as the first asset and ETH as the second asset.
How to unwrap Ethereum on OpenSea using Metamask?
If you want to unwrap WETH, you can easily do it using OpenSea and a Metamask wallet. Before you start unwinding your WETH, go to each company’s website and register for an account. After registering for a Metamask account, you can fund it with fiat currency, cryptocurrency or a debit/credit card. Next, connect your Metamask wallet to your OpenSea account. To do this, you must complete a transaction between your openSea and Metamask accounts.
Once you have created your Metamask and OpenSea and have WETH in your OpenSea wallet, perform the following steps:
Go to /opensea.io/
Log in to your OpenSea account.
Click on the wallet icon in the top right corner of the screen.
Click on the three dots next to your WETH.
Click on the “Unwrap” option.
After your request has been processed, click the “Confirm” button to change it to your Metamask wallet.