How Is a “Wrapped Token” Created and Redeemed?
A wrapped token is created through a "lock-and-mint" process. The original asset is locked in a smart contract vault on its native chain, and an equivalent wrapped token is minted on the destination chain, maintaining a 1:1 peg.
Redemption reverses this: the wrapped token is burned on the destination chain, and the original asset is unlocked from the vault on the native chain.
Glossar
Wrapped Bitcoin
Collateralization ⎊ Wrapped Bitcoin represents an ERC-20 token mirroring the value of Bitcoin on the Ethereum blockchain, fundamentally functioning as a standardized collateral asset within decentralized finance.
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.
Smart Contract Vault
Execution ⎊ A Smart Contract Vault, within cryptocurrency and derivatives markets, represents a non-custodial mechanism for automating complex trading strategies and managing digital assets, often involving options or other financial instruments.