How Does a “Wrapped” Token Maintain Its Peg to the Original Asset?

A wrapped token maintains its peg through a 1:1 backing mechanism enforced by a custodian or a smart contract vault. For example, to mint 1 wBTC (Wrapped Bitcoin), 1 native BTC must be locked in a secure vault.

The peg is maintained by the guarantee that any wBTC can be redeemed for 1 native BTC at any time. This redemption mechanism, combined with arbitrage opportunities that correct any price deviation, ensures the wrapped token's value remains closely tied to the underlying asset.