# How Does a "Wrapped" Token Maintain Its Peg to the Original Asset? ▴ Learn

**Published:** 2025-11-16
**Categories:** Learn

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## 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.

What Is the Role of a Custodian in a Traditional OTC Transaction versus a Blockchain Transaction?

How Does the ‘Proof of Reserves’ Mechanism Relate to Custodian Transparency?

How Can a Protocol Use Options Trading to Hedge against Native Token Price Impairment Risk?

What Is the Primary Security Risk Associated with Cross-Chain Bridge Protocols?

## Discover More

- 
### [How Does the Two-Way Peg Mechanism Work for a Sidechain?](https://crypto.greeks.live/learn/how-does-the-two-way-peg-mechanism-work-for-a-sidechain/)
![The composition displays intersecting, luminous cyan structures crossing an off-white ovoid plane resting upon a marbled pedestal, set against absolute blackness, symbolizing complex derivatives structures. This abstract visual models the intersectionality of volatility surfaces and portfolio hedging strategies within decentralized finance DeFi environments. The glowing rods suggest propagation of momentum while the floating orbs signify uncorrelated assets or exogenous market shocks impacting option pricing mechanisms. Central to the theme is the concept of strike price divergence and synthetic position construction inherent in perpetual futures and overcollateralized lending protocols like MakerDAO's Dai issuance, emphasizing systemic risk management across the digital asset ecosystem.](https://crypto.greeks.live/wp-content/uploads/2025/10/Cryptocurrency-Volatility-Skew-Representation-Illuminating-Collateralized-Debt-Position-Dynamics.jpg)

It locks assets on the main chain and unlocks a corresponding amount on the sidechain, and vice versa, maintaining supply parity.

- 
### [Define ‘Bonding Curve’ in the Context of a Token Launch and Its Relation to AMM Formulas](https://crypto.greeks.live/learn/define-bonding-curve-in-the-context-of-a-token-launch-and-its-relation-to-amm-formulas/)
![This stark visual composition features two highly polished metallic disks seemingly floating above a textured, curved substrate against absolute blackness, evoking themes of digital asset securitization and structured products. The upper disk is sharply angled, suggesting directional volatility inherent in leveraged perpetual futures or call option expiry dynamics. The lower disk rests near the base unit which exhibits recessed circular apertures reminiscent of blockchain node identifiers or smart contract execution points. This abstraction mirrors the complex interplay of underlying asset price action and derivative payout structures, particularly emphasizing concepts like delta hedging efficiency and collateral management stability within synthetic asset protocols, far beyond simple spot trading paradigms.](https://crypto.greeks.live/wp-content/uploads/2025/10/Metallic-Replicating-Disks-Suggesting-Impermanent-Loss-Mitigation-in-Decentralized-Finance-Mechanisms.jpg)

A function defining the price-supply relationship; AMM formulas are specific bonding curves for two-asset exchange rates.

- 
### [How Does the Transparency of a DAO’s Treasury Impact Its Strategic Investments?](https://crypto.greeks.live/learn/how-does-the-transparency-of-a-daos-treasury-impact-its-strategic-investments/)
![This macro view details a precise mechanical junction reminiscent of internal infrastructure supporting complex decentralized finance architecture. The teal housing suggests robust operational security beneath the beige overlay which mirrors a critical governance module interface. Sharp metallic components visible below hint at low-latency execution mechanics essential for high-frequency arbitrage across decentralized exchanges DEX liquidity pools. The design ethos evokes immutable smart contract logic securing layered collateralization for perpetual swap contracts or synthetic asset replication. This structure symbolizes the meticulous engineering underpinning transparent on-chain derivative clearing mechanisms and yield farming protocols requiring predictable actuation.](https://crypto.greeks.live/wp-content/uploads/2025/10/Precision-Engineering-of-Automated-Market-Maker-Mechanism-Hinge-Governance-Structure.jpg)

Treasury transparency builds trust but exposes the DAO's investment strategy to front-running and copy-trading by others.

- 
### [How Does the CFTC Classify a Crypto Asset to Bring It under Its Jurisdiction for Derivatives Trading?](https://crypto.greeks.live/learn/how-does-the-cftc-classify-a-crypto-asset-to-bring-it-under-its-jurisdiction-for-derivatives-trading/)
![This abstract composition features intersecting oblong forms resembling electric skateboard footpads overlaid upon a stylized singular wheel mechanism indicative of a OneWheel device, set against an absolute black void simulating deep space or zero-collateral margin. The turquoise and cream elements suggest a dichotomy, perhaps representing underlying spot asset volatility contrasting with synthetic synthetic option premiums. The structure visualizes the delicate balance required in perpetual futures trading strategies or dynamic automated market maker rebalancing, demanding precise execution of stop-loss or take-profit orders to maintain equilibrium against systemic risk factors like oracle failure or flash loan exploits. The central hub suggests the core ledger or smart contract architecture underpinning decentralized finance governance mechanisms.](https://crypto.greeks.live/wp-content/uploads/2025/10/Geometric-Abstraction-of-Self-Balancing-Electric-Unicycle-as-Financial-Hedging-Mechanism-Analogy.jpg)

The CFTC classifies a crypto asset as a "commodity" under the Commodity Exchange Act (CEA) to regulate its derivatives.

- 
### [How Does the Energy Consumption of PoW Affect Its Viability for Global Finance?](https://crypto.greeks.live/learn/how-does-the-energy-consumption-of-pow-affect-its-viability-for-global-finance/)
![This highly polished pale sphere exhibits four intersecting planar divisions forming a central, faintly cyan luminescent nexus, suggestive of intricate digital architecture. The segments are precisely articulated revealing internal actuation components perhaps representing underlying blockchain ledger mechanics or smart contract execution pathways. Two dark sapphire circular indentations on opposing faces hint at potential input nodes or quorum voting markers essential for DAO ratification processes. The structure embodies the concept of secure cryptographic encapsulation shielding volatile on-chain settlement layers inherent in high-frequency options execution. It symbolizes the balanced interplay between custody solutions decentralized ledger technology and the complexity of derivative pricing models such as implied volatility surface mapping.](https://crypto.greeks.live/wp-content/uploads/2025/10/Asymmetric-Trinary-Split-Spherical-Structure-Signaling-Decentralized-Autonomous-Organization-Governance-Mechanisms.jpg)

High energy consumption of PoW creates environmental concerns and regulatory scrutiny, limiting its scalability and global acceptance in favor of sustainable alternatives.

- 
### [What Is the Difference between a Token’s Price and Its Value?](https://crypto.greeks.live/learn/what-is-the-difference-between-a-tokens-price-and-its-value/)
![Translucent sapphire-hued structural elements intersect at a central nexus suggesting a complex interaction of financial primitives. This abstract representation symbolizes the cross-section of derivative instruments where underlying cryptocurrency asset price discovery intersects systemic risk management. The sharp, defined edges evoke strike price delineation within out-of-the-money options contracts. Reflections illuminate the concept of implied volatility skew surfacing in high-frequency trading environments for stablecoin collateralized debt positions. The composition embodies the intricate geometry of option pricing models like Black Scholes adapted for decentralized finance perpetual swaps demonstrating leverage amplification beyond linear progression. It visualizes portfolio delta hedging sensitivity across non-fungible token financialization barriers.](https://crypto.greeks.live/wp-content/uploads/2025/10/Crystalline-Bifurcation-Structure-Modeling-Inherent-Volatility-Surface-Dynamics-Across-Digital-Asset-Hedging-Instruments.jpg)

Price is what you pay for a token; value is what it's truly worth.

- 
### [Define “Gamma” in Options Trading and Its Relationship to the Underlying Asset’s Price Change](https://crypto.greeks.live/learn/define-gamma-in-options-trading-and-its-relationship-to-the-underlying-assets-price-change/)
![The high-gloss, curvilinear surfaces present a stark visual metaphor for the opaque nature of implied volatility surfaces in crypto options markets. The smooth, pale upper dome contrasts sharply with the dark, metallic lower body, suggesting the divergence between extrinsic value premium and the underlying spot asset's perceived stability. This aesthetic mirrors the sensitivity of delta hedging strategies against stochastic volatility shocks in perpetual futures contracts. The interplay of light reflects the bid ask spread friction encountered during large notional requests for quotes RFQ execution. Key concepts include the convexity adjustment inherent in complex derivative structuring and the theta erosion affecting out of the money calls and puts expiring worthless.](https://crypto.greeks.live/wp-content/uploads/2025/10/Abstract-Visualization-of-Option-Premium-Decay-and-Volatility-Surface-Contours-on-a-Digital-Asset-Structure.jpg)

Gamma measures the rate of change of Delta; high Gamma means Delta changes rapidly, making the option highly sensitive to price moves.

- 
### [How Does the Complexity of American Option Pricing Affect Its Smart Contract Implementation?](https://crypto.greeks.live/learn/how-does-the-complexity-of-american-option-pricing-affect-its-smart-contract-implementation/)
![This abstract geometric structure features matte pale beige panels juxtaposed with dark slate components inscribed with faint circuit-like textures, centering around a complex hexagonal nexus point. It conceptually models the dynamic equilibrium required for efficient Automated Market Maker functioning and sophisticated derivatives pricing models. The arrangement suggests the intricate interplay between staking protocols yield generation and precise volatility surface mapping for synthetic asset issuance. Keywords integral to this visualization include Impermanent Loss mitigation stratum collateralized debt positions options delta hedging skew analysis and cross margin collateralization execution. The visual tension reflects the delicate balancing act inherent in managing large-scale DeFi portfolio exposure against transient on chain transaction latency issues impacting arbitrage windows.](https://crypto.greeks.live/wp-content/uploads/2025/10/Abstract-Deployment-Configuration-of-Decentralized-Exchange-Liquidity-Provision-Mechanisms-Versus-Options-Gamma-Exposure.jpg)

Optimal exercise time is unknown, making on-chain pricing computationally expensive; many protocols use the simpler European style to save on gas fees.

- 
### [How Does the ‘Peak Size’ Parameter of an Iceberg Order Influence Its Effectiveness?](https://crypto.greeks.live/learn/how-does-the-peak-size-parameter-of-an-iceberg-order-influence-its-effectiveness/)
![This rendering showcases a precisely engineered device, teardrop shaped and encased in muted beige and charcoal gray polymers, suggesting an enclosed proprietary oracle or decentralized autonomous organization governance interface. The central aperture and ancillary sensor nodes evoke sophisticated quantitative arbitrage mechanisms, perhaps symbolizing the complex interplay of smart contract execution environments. It visually represents the maturation of crypto derivatives requiring stringent on chain settlement finality, moving beyond simple spot trading to encompass structured products like perpetual swaps or volatility targets. The sleek design hints at low latency decentralized exchange architecture necessary for efficient margin collateral management and the execution of complex synthetic asset strategies within DeFi protocols, demanding robust risk parity implementation. This structure embodies the secure, auditable pathway for options premium realization and guaranteed payout contingent on underlying asset movement thresholds.](https://crypto.greeks.live/wp-content/uploads/2025/10/Teardrop-Encapsulated-Algorithmic-Trading-Module-Representing-Decentralized-Finance-Option-Settlement-Mechanisms.jpg)

Smaller peak size maximizes concealment and minimizes market impact, but increases fill time and opportunity cost. Larger peak size is faster but risks revealing the full order.

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