Wrapped Ethereum (WETH) Full Review
Wrapped Ethereum (WETH) has become one of the more popular cryptocurrency tokens on the Ethereum platform due to its usefulness when dealing with DeFi protocols. This article will explain all the relevant information you need to know about WETH and whether or not it’s a good investment.
What is WETH?
WETH is an ERC-20 token on the Ethereum blockchain. The token itself is a wrapped version of Ether, which might sound weird. Why is there a need for a wrapped version of Ether on Ethereum?
The reason is actually easy to understand when you understand some of the basic architecture of Ethereum. We will keep it simple with our explanation, though.
Basically, Ether is not an ERC-20 token. This is a problem because DeFi protocols only work with ERC-20 tokens. As such, it’s impossible to trade on ETH on a decentralized exchange or lend out ETH on a decentralized lending platform.
This limitation of Ether necessitated the creation of an ERC-20 token version of ETH, which is why Wrapped Ether (WETH) was created.
How is WETH Created?
The creation of WETH is complicated from a coding viewpoint, but it’s actually a fairly simple process to understand. You should view WETH as a stablecoin-like token because the value of it is pegged to the value of ETH at a 1:1 ratio.
The process is done by depositing ETH into a smart contract in exchange for WETH at a 1:1 ratio. WETH can be exchanged for ETH by depositing the WETH into the smart contract, which will burn the corresponding WETH.
From a market perspective, there is no difference between WETH and ETH. USDT is to the US Dollar as WETH is to ETH.
Who Founded WETH?
Wrapped Ether (WETH) was developed by a team of Etherum developers led by 0x labs. As mentioned previously, it was created to make using Ether on DeFi applications possible.
The first WETH smart contract was launched in November 2017, so it has been around for a decent amount of time.
Is WETH Safe?
WETH is safe, but it is not as safe as holding ETH. This is because holding WETH exposes you to smart contract risk.
What would happen if an exploit in the WETH smart contract caused all the Ether held in it to be drained?
The value of WETH tokens would likely plummet as they would have no backing.
Other than that, there is not much risk to holding WETH other than the normal risk associated with holding ETH.
That said, we do not recommend holding WETH unless you need to for DeFi purposes. Why expose yourself to extra risk unless necessary?
WETH Token Information
WETH should always have the same price as ETH. The market cap is obviously lower and the trading volume is different, but other than that all the market information (ie. price) is the same.
Fully Diluted Market Cap: $3.5 billion USD
24-Hour Trading Volume: $2 billion USD
Is WETH a Good Investment?
We do not recommend investing in WETH unless you must do so to access certain DeFi features.
This might sound extreme, but WETH is meant for use on DeFi. There is no use for WETH outside of DeFi applications. As mentioned previously, purchasing WETH exposes you to smart contract risk. The chances of the WETH smart contract getting hacked is low, but it’s not worth the risk.
You should not take this as advice to not purchase Ether. We cannot recommend whether you should or should not purchase Ether, but if you want to invest in Ether, then purchase ETH and not WETH.
That covers it for everything you need to know about WETH. It’s a financial tool meant for use on DeFi protocols. If you don’t use DeFi, then you have no real need to purchase WETH.
With that in mind, WETH is one of the most important tokens in the DeFi ecosystem. The coin has had a very positive impact on the trajectory of DeFi protocols.