Our beginner’s guide to wrapped tokens and what they bring to the ecosystem.
What is a Wrapped Coin?
To answer this, it may be helpful to first touch on the first cryptocurrency ever created — Bitcoin. Bitcoin remains one of the most popular and sought after digital assets, with people holding on to BTC as a store of value or intending to use it in place of physical money. Whatever the case may be, Bitcoin is tied to its own blockchain, making it extremely difficult to integrate it into a different blockchain ecosystem without modifications having to be made; this is where the notion of ‘wrapping’ a coin comes into play.
It’s known as a “wrapped” token because the original asset, in this case, Bitcoin, is put in a digital escrow on the Bitcoin blockchain which enables minting the equivalent amount of “wrapped” Bitcoin ‘ on a different blockchain. For example, a popular wrapped coin is WBTC, which is “wrapped” BTC minted on the Ethereum network. The advantage of this “wrapped” BTC is that it can be used with any smart contract, protocol or dApp on the Ethereum ecosystem. To visualize this, imagine the wrapped Bitcoin, WBTC, which has become an ERC-20 token with its price determined by a smart contract algorithm that reproduces its value in real-time.
Why Use Wrapped Coins?
In exchange for escrowing the original assets, wrapped token users get an equivalent amount of value “wrapped up” in an asset that decentralized applications can easily take advantage of. Furthermore, as a wrapped coin can access the other blockchain, it opens up exciting opportunities by bridging the liquidity on one chain with the functionality available on the other chain.
Other assets such as gold, equity shares, real estate etc., can also take advantage of wrapping by having their values pegged to a blockchain token. This allows the user to trade the wrapped version of their asset on the blockchain.
Wrapping unlocks a wide range of benefits, including fractionalized ownership of assets which could be a tiny fraction of a high-cost share or fractions of an expensive NFT. And of course, as the assets are on the blockchain, users control their token using their own private keys.
Harnessing the power of the blockchain facilitates the real-time settlement of financial transactions with complete transparency. In addition, any issues with double-spending are removed because the unit of value can only be transferred once. The total number of wrapped tokens and any associated transactions such as minting, burning, one-way transfers, atomic swaps, multi-sig transactions etc., are visible to anyone using a blockchain explorer, bringing unparalleled levels of transparency.
Wrapped tokens allow developers to tap into the programmability of smart contacts to code financial and physical assets. For example, payments or transfers could be triggered once certain smart contract conditions have been met. Once the smart contract deploys to the network, it will run autonomously, continually acting on the logic of its code without the need for intermediaries.
Blockchain transactions go through in seconds and can be carried out 24/7, 365 days a year, as there is no need to wait for any physical exchanges to open for trading. Furthermore, the atomic nature of the blockchain guarantees that all parts of a transaction, which may be taking place between multiple parties, must complete in a single transaction, or all will fail. This enables real-time automated settlement and removes the need for reconciliation.
Wrapping ROSE tokens
In the quest to bring the benefits of DeFi to everybody, Oasis recently partnered with Knit Finance to integrate ROSE with the Multichain platform and issue wrapped K-ROSE for cross-chain transactions.
Knit Finance is a unique decentralized protocol that facilitates the “wrapping” of traditional and crypto-assets with smart contracts and insurance, making them tradeable across multiple chains, bridges, and in real-world markets. As part of the Polkadot ecosystem, Knit Finances interoperability brings DeFi to the masses and unlocks potentially trillions of dollars in assets.
Under this exciting new partnership, Oasis Network’s ROSE token will be integrated into Knit Finance’s multichain platform, allowing users to benefit from cross-chain DeFi services and transactions made possible by using the “k” wrapping standard for the ROSE token.
The Knit Finance protocol bridges multiple real-world and Crypto markets to allow convenient cross-chain asset fluidity based on insured custody. Knit Finance also enables real-world assets, including stocks, gold, and fiat currencies, to be brought into the DeFi ecosystem. Knit hopes to further fuel the acceleration of the transition from centralized to decentralized financial services by offering these capabilities to banks and crypto newcomers alike.
A better internet is only a matter of time. The Oasis network is trying to fix what’s broken by giving users back control of their data using a combination of secure computation and a proof-of-stake blockchain.
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