WETH

WETH, or Wrapped ETH, is a tokenized version of Ethereum (ETH) that conforms to the ERC-20 standard. This alignment allows it to interact seamlessly with other ERC-20 tokens, facilitating trading, staking, and other blockchain activities on decentralized applications and exchanges. By wrapping ETH into WETH, users can take advantage of interoperability across various networks, including Ethereum, Binance Smart Chain, Polygon, Solana, and Cardano.

WETH is essential because it bridges the gap between ETH and ERC-20 tokens. As ETH was created before the ERC-20 standard, it does not naturally comply, making it less versatile in DeFi environments. WETH standardizes ETH into an ERC-20 format, enabling consistent and efficient trading on decentralized platforms. This ensures users can engage in activities like lending, staking, and liquidity provisioning without compatibility issues.

To wrap ETH into WETH, connect a web3 wallet to a DeFi exchange, specify the ETH amount, and execute the swap through a smart contract. WETH, equivalent to the swapped ETH, is then issued to your wallet. To unwrap, the process is reversed: initiate the swap from WETH back to ETH. On centralized exchanges, the ETH is burned and WETH is minted; vice versa occurs when unwrapping.

Using WETH on decentralized exchanges (DEXs) ensures smooth interoperability with ERC-20 tokens, enabling seamless trading, staking, and liquidity provision. This reduces the friction ETH users face due to its non-compliance with the ERC-20 standard. Furthermore, WETH's high liquidity, supported by its substantial trading volume across 18,834 markets, enhances market efficiency, ensuring users can execute transactions swiftly and without significant price impact.

WETH maintains a stable 1:1 price ratio with ETH, meaning for every 1 ETH you wrap, you receive 1 WETH. This one-to-one conversion ensures that WETH mirrors ETH's value. The process of wrapping and unwrapping is designed to preserve this parity, where custody protocols ensure the correct issuance and redemption of WETH against ETH.

In the future, it is hoped that ETH will be updated to comply with the ERC-20 standard, eliminating the need for WETH. However, until then, WETH remains a vital component for maximizing ETH's usability across the decentralized ecosystem. This update would eventually make WETH obsolete by allowing ETH to natively interact with ERC-20 tokens and decentralized applications without conversion.