Explain the Process of ‘Minting’ and ‘Redeeming’ a Wrapped Token.
Minting a wrapped token involves a user depositing the underlying asset (e.g. Bitcoin) with a custodian or a smart contract.
The custodian then locks the asset and issues an equivalent amount of the wrapped token (e.g. wBTC) on the target chain. Redeeming is the reverse: the user sends the wrapped token back to the custodian, which burns the token and releases the original underlying asset.
Glossar
Minting and Redeeming
Creation ⎊ Minting and redeeming, within decentralized finance, represents the lifecycle of an asset ⎊ its instantiation and subsequent conversion back to underlying collateral or value.
Wrapped Token
Definition ⎊ Wrapped Token describes a synthetic asset created on one blockchain that represents and is pegged 1:1 to an asset native to a different blockchain, facilitating its use within the smart contract ecosystem of the host chain.
Underlying Asset
Futures Pricing incorporates the cost of carry, which in crypto markets includes funding rates derived from perpetual swap markets and the time value associated with holding the spot asset.
Minting
Creation ⎊ Minting, within cryptocurrency, signifies the process of validating transaction data and recording it on a blockchain, effectively introducing new tokens into circulation.