What is a Wrapped Token?
Last reviewed 2026-07-27
Used by: WBTC (BitGo), WBTC bridge
A wrapped token is a blockchain asset that represents another asset 1:1 on a chain where the original cannot natively exist. Each wrapped unit is backed by one unit of the underlying asset held in reserve, so the wrapped version tracks the original's price. Wrapped Bitcoin (WBTC) — bitcoin issued as an ERC-20 token on Ethereum — and Wrapped Ether (WETH) are the canonical examples.
How it works
There are two main models. In the custodial model, a custodian holds the underlying asset and mints or burns the wrapped token against it. WBTC, launched in January 2019 as a joint project of BitGo, Kyber Network and Ren, works this way: an approved merchant takes a user's BTC (with KYC/AML checks), the custodian locks the BTC in reserve and mints the same amount of WBTC on Ethereum. Redemption reverses the flow — WBTC is burned and BTC is released. Reserves are verifiable on-chain because every backing address is public.
In the smart-contract model, wrapping is trustless. WETH is the simplest case: ether predates the ERC-20 standard, so a canonical contract lets anyone deposit ETH and receive WETH (and unwrap at any time) with no custodian, no counterparty and no protocol fee beyond gas. Decentralized designs like Threshold Network's tBTC replace the single custodian with threshold cryptography across a distributed signer set.
The custodial model's key risk — who controls the reserves — became concrete in August 2024, when BitGo announced a joint venture with BiT Global that would move WBTC custody into a multi-jurisdictional arrangement involving entities linked to Tron founder Justin Sun. MakerDAO (now Sky) responded in August 2024 with an executive vote that cut the WBTC debt ceiling to zero, blocking new WBTC-backed loans, and in September 2024 its community ratified a plan to offboard WBTC as collateral entirely. Coinbase launched its own competing wrapped bitcoin, cbBTC, on September 13, 2024, and suspended WBTC trading on December 19, 2024. BiT Global sued Coinbase for $1 billion over the delisting on December 13, 2024; a federal judge denied its request to block the delisting, and BiT Global dismissed the suit with prejudice in June 2025. WBTC remains the largest wrapped bitcoin by supply, but its market share has eroded as cbBTC and other alternatives scaled.
Why it matters
Wrapped tokens let the largest pool of crypto value — bitcoin — plug into DeFi lending, DEX liquidity and collateral markets it could not otherwise reach. The 2024 WBTC episode is the standard case study in custodian risk: a wrapped token is only as trustworthy as whoever controls the keys to its reserves.
Real-world examples
WBTC (custodial, BitGo/BiT Global), cbBTC (Coinbase, launched September 2024), WETH (trustless contract wrapper for ether), tBTC (Threshold Network, decentralized signer set).
Related terms
Go deeper
Read our guide to bridging tokens safely across chains, or browse the complete crypto glossary.
Bridging Safety Guide Browse Glossary