What is Wrapped ETH (WETH) & why it's used
Wrapped ETH (WETH) is Ethereum (ETH) in a tokenized form that follows the ERC-20 token standard. Since ETH itself is not ERC-20 compliant, WETH allows ETH to be used seamlessly in DeFi applications, smart contracts, and decentralized exchanges (DEXs).
Think of WETH as ETH in a compatible wrapper, making it easier to trade, stake, and interact with Ethereum-based protocols.
Why is ETH wrapped?
Ethereum was created before the ERC-20 token standard existed, meaning ETH does not function like ERC-20 tokens. Since most DeFi platforms, liquidity pools, and DEXs operate using ERC-20 tokens, ETH needs to be wrapped into WETH for compatibility.
How Wrapped ETH (WETH) works
- Deposit ETH: Users send ETH to a smart contract that issues WETH at a 1:1 ratio.
- Receive WETH: The contract mints WETH tokens, which can be used like any ERC-20 token.
- Unwrap when needed: Users can convert WETH back to ETH at any time through the same contract.
Since WETH is always backed by ETH in a 1:1 ratio, it maintains its value at 1 WETH = 1 ETH (minus gas fees).
Where is WETH used?
- Decentralized Exchanges (DEXs) – Trade ETH on platforms like Uniswap and SushiSwap.
- DeFi protocols – Use ETH in lending, staking, and yield farming.
- Smart Contracts – Interact with dApps that require ERC-20 tokens.
- NFT marketplaces – Buy and sell NFTs on OpenSea, which uses WETH for auctions.
WETH enhances liquidity and interoperability across Ethereum-based applications.
WETH vs. ETH: Key Differences
| Feature | ETH (Ethereum) | WETH (Wrapped ETH) |
|---|---|---|
| Token Standard | Native ETH | ERC-20 |
| Compatibility | Not ERC-20 compliant | Fully ERC-20 compatible |
| Use Cases | Gas fees, staking, payments | DeFi, trading, NFTs |
| Conversion | Cannot be wrapped directly | 1:1 swap with ETH |
While WETH is essential for DeFi, future Ethereum upgrades might make ETH natively ERC-20 compatible, removing the need for wrapping.