Since Bitcoin's blockchain debut in 2008, cryptocurrencies have evolved to offer diverse functionalities—Ethereum introduced smart contracts, Litecoin enabled fast payments, and privacy coins like Monero prioritized anonymity. Despite their innovations, these blockchains operate in isolation, limiting cross-chain token utility. Enter wrapped tokens: blockchain bridges that peg a token’s value to another cryptocurrency, enabling its use on non-native networks.
This guide explores wrapped tokens like WBTC, WETH, and RBTC, their role in decentralized finance (DeFi), and how they enhance interoperability.
What Are Wrapped Tokens?
Wrapped tokens are tokenized versions of cryptocurrencies, allowing them to function on foreign blockchains. For example:
- WBTC (Wrapped Bitcoin): An ERC-20 token pegged 1:1 to Bitcoin, usable on Ethereum.
- RBTC: RSK’s native token, pegged to Bitcoin, enabling smart contracts on Rootstock.
How Tokenization Works
- A user sends native tokens (e.g., BTC) to a custodian (smart contract or decentralized entity).
- The custodian mints equivalent wrapped tokens (e.g., WBTC) and transfers them to the user.
- Original tokens are held as collateral; wrapped tokens circulate until redeemed.
Key Benefit: Cross-chain functionality without swapping assets.
Why Wrapped Tokens Matter
- Interoperability: Bridge isolated blockchains (e.g., Bitcoin ↔ Ethereum via WBTC).
- Efficiency: Bypass slow native transactions (e.g., Bitcoin’s 10-minute blocks vs. Ethereum’s 3-minute blocks).
- Decentralization: Custodians (like RSK’s PowPeg) ensure transparency via public blockchain audits.
- DeFi Integration: Use BTC in Ethereum-based yield farming or lending protocols.
👉 Discover how wrapped tokens power DeFi liquidity
Popular Wrapped Tokens
| Token | Blockchain | Peg | Use Case |
|--------|------------|-----|----------|
| WBTC | Ethereum (ERC-20) | 1:1 BTC | DeFi liquidity |
| RBTC | RSK (Rootstock) | 1:1 BTC | RSK network fees |
| WETH | Ethereum (ERC-20) | 1:1 ETH | ERC-20 token swaps |
Note: RenBTC and BTCB serve similar cross-chain purposes on Ethereum and Binance Smart Chain, respectively.
WBTC vs. RBTC: Key Differences
| Feature | WBTC | RBTC |
|-------------|------|------|
| Custodian | Centralized entities + merchants | RSK’s decentralized PowPeg |
| Purpose | DeFi liquidity on Ethereum | RSK network transactions |
| Access | Requires merchant KYC | Direct bridge interaction |
RBTC Advantage: Native to RSK, enabling Bitcoin-based smart contracts without ETH dependency.
FAQs
1. Can wrapped tokens lose their peg?
Rarely. Collateral is audited; custodians (like RSK’s PowHSMs) ensure 1:1 backing.
2. How do I convert BTC to WBTC?
Submit BTC to a WBTC merchant (e.g., Kyber Network), undergo KYC, and receive ERC-20 WBTC.
3. Is RBTC the same as BTC?
No. RBTC represents BTC on RSK’s network but can be redeemed 1:1 via PowPeg.
👉 Explore RSK’s Bitcoin smart contracts
Conclusion
Wrapped tokens like WBTC and RBTC solve blockchain fragmentation, unlocking DeFi opportunities for Bitcoin holders. While WBTC fuels Ethereum’s ecosystem, RBTC extends Bitcoin’s utility to smart contracts—all with minimal trust via transparent custodians.
Pro Tip: Use wrapped tokens to earn yield on idle BTC or access cross-chain dApps without selling assets.