Robert Steinadler, 6 months ago

wETH jokes are getting out of hand – Wrapped Ether is fine, here is why

FUD is nothing new in a bear market. Everybody is bullish at the top and everybody is bearish at the bottom, which could explain why so many negative rumors are gaining traction recently. Interestingly enough some of them are meant as a joke and some investors fall for the amusing but nevertheless fake stories.

What is wETH and why is nothing wrong with it despite what Twitter and Bloomberg says?

Wrapped Ether is vital to DeFi

Wrapped Ether or wETH is a so-called wrapper that is not issued by a centralized party. Instead, it works decentralized through several smart contracts. The general idea of a wrapper is to tokenize an already existing crypto asset or a cryptocurrency such as Bitcoin or Ethereum.

Wrappers like wBTC or wETH make it possible to hold the underlying asset on another blockchain. For instance, this allows providing liquidity on the Solana blockchain using wETH while enjoying the up- and the downside of holding the equivalent of ETH. Even on Ethereum, there is an advantage since wETH has the same qualities as an ERC-20 token and can be processed without any technical modification. It is even possible to move wETH across two different blockchains.

In conclusion, it makes sense to wrap Ether as a token and use it for a couple of use cases that profit from the ERC-20 token standard even on the Ethereum blockchain.

No, wETH is not depegging

The joke that is passed around is that wETH is at risk of depegging. Unlike with a stablecoin there is no peg to the price of Ether that needs to be kept in balance. Instead, for each wETH existing ETH needs to be locked. Users can reverse this process and receive ETH in return for unwrapping wETH. Hypothetically speaking, it is possible for wETH to lose its value, but only if the custodian in question would lose the ETH that was deposited.

When the joke was passed around on social media, Bloomberg picked up on the story and reported that wETH could pose a systemic risk to the whole crypto sector. The report had to be amended later since this is obviously not the case.

However, the message is still out there and some users are not getting the joke. Once again it has been proven that news shouldn’t be trusted at face value but checked before taking action or panicking.

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