Wrapped Tokens - Crypto Academy / S4W6 - Homework post for pelon53.

in hive-108451 •  8 months ago  (edited)

Hello,

This is a homework post for professor @pelon53.

Screenshot (844).png


Question : 1

Name at least 2 Blockchains that use the Wrapped BTC, excluding Ethereum, and show screenshots. Explain.

Answer :


Before we give answer to this question. Let us first discuss about wrapped tokens.


Creation of Wrapped BTC


This all started in 2019 when three companies : BitGo, Kyber Network and Republic Protocol come together with a clear vision of creating such BTC token that can be used in ethereum blockchain. This all is done for BTC holders, so that they can use many DeFi and Dapps. Using them BTC holders will be able to use many financial services that DeFi and Dapps provide.

wBTC is not a decentralised token but it is centralised and governed by BitGo. This governance is because these three companies agreed to create a centralised system for wBTC which keep an eye on WBTC, the main governance is now done by BitGo, this system can interact with Ethereum blockchain through smart contracts. In this way, a system was created that govern and represent the token. This will helps to create trust among people that their asset is guarded by a good company.


What is wrapped BTC and how it works?


The wrapped token is tokenized form of the other cryptocurrency. It has the same value as the original asset and also it can be redeemed at any point of time. It is basically, a representation of asset that belongs to other blockchain and can be used in another blockchain.

Wrapped Bitcoin (WBTC) is tokenized form of BTC on ethereum. WBTC is a ERC-20 token that as same value as original BTC but WBTC can be used on Ethereum network effectively.

Wrapped token needs a custodian that will hold the equivalent amount of asset as wrapped asset amount. This custodian is an entity( it can be a DAO, smart contract) that will hold 1 BTC for each 1 WBTC that is minted. Let me explain this more, when a merchant send BTC to custodian, he will mints WBTC on Ethereum according to the amount of BTC that merchant sent. When this WBTC need to exchanged with BTC , then the custodian will burn the WBTC to get BTC.


Benefits of WBTC


👉 BTC holders can now use DeFi system.

👉wBTC helps to exchange faster among users.

👉Wrapped tokens will help to increase the liquidity for exchanges.

👉 Wrapped tokens will create links between the blockchains.

👉 Wrapped BTC has faster transactions and lower fees.


Limitations of wBTC


👉 The exchange to wrapped token goes through custodian, so one needs to trust custodian holding the funds.

👉 This system is not decentralised and under control of some central body.

👉 Minting process requires high gas fees and can incur slippage.

Let us now look at the blockchains that use wrapped bitcoins. There are many blockchains that use wrapped blockchains.


1.Binance Smart Chain


Binance smart chain blockchain also uses wrapped bitcoin token. Just like ethereum blockchain, you can easily wrap BTC and some other crypto assets using BSC(Binance Smart Chain).

The Binance Bridge allows you to wrap your tokens under BEP2 standards and you can use them on binance smart chain for various yield farming applications.

By binance bridge you can wrap many cryptos like BTC, ETH, USDT, DOT, XPR, BCH, and many more. Once you brought your desired asset to Binance Smart Chain, you can trade your asset or use them for various yield farming purposes. All these wrapped token has value in 1:1 with the original asset's value.

The wrapped BTC on Binance Smart Chain is known as Bitcoin BEP2 (BTCB). This wrapped token will carry out fast and reliable transactions on binance platform. One of the advantages of BTCB is that this increases the transactions speed and also the gas charges are very low compared to other blockchains.


1.png

List of tokens from Binance Smart Chain Explorer site : Source : BscScan website


BTCB is token on BSC and its price is pegged to BTC means 1 BTCB = 1BTC. As you can see in the picture taken from BscScan LINK BTCB is ranked 21st when stored by marketcaps in binance. You can see the details of token like volume, market cap, price, ...etc. To get more details of token you need to click on asset and you get :


2.png

BTCB details from Binance Smart Chain Explorer : Source : BscScan website


After click on asset you get all the details of BTCB token whose price is exactly same as BTC as you can see in the picture. You can also check total supply,transaction details like hash of transactions, quantity, and many more things about the token.

You can also check the details of token on coinmarketcap website. When I search for token I get these details :


3.png

BTCB details from CoinMarketCap : Source : CoinMarketCap website


As you can see in the picture the price of BTCB is same as BTC. You can see that it is ranked 32 on coinmarketcap at the time I am doing this homework. You can also see other details about token like market cap, price, volume and many more.


2. Tron Blockchain


On 11th January 2021 , the BitGo company that governs the wrapped token launched wrapped bitcoin on the TRON blockchain. The main motive behind this is to develope DeFi system on Tron blockchain and also provide access to BTC holders on Tron ecosystem.

The wrapped BTC on Tron blockchain is known as Bitcoin TRC-20(BTCT). It is pegged with the price of bitcoin means it's price is exactly equal to original BTC, the only difference is that it can be used on tron ecosystem but original BTC can't. You can check the details of token on coinmarket cap website.


4.png

BTC TRC-20 details from CoinMarketCap : Source : CoinMarketCap website


As you can see that this token has same price as the BTC. It is ranked 2791 at the time I am doing this home work. You can aslo check other details about the token like volume, market cap, ..many more.

One can easily convert BTC to BTCT and the reverse process is also easy. If you want to unwrap means, if you want to convert BTCT to BTC you can also do that and get your BTC.


Question : 2

What is the difference between the wETH of the Ethereum platform and the wETH of the TRON platform? Explain.

Answer :


Following are the differences between wETH of ethereum and tron network :

👉 wETH of ethereum blockchain is created from ERC-20 standards for using it in Ethereum network as the original ETH token is not compatible with ERC-20 whereas, wETH of tron network is created under TRC-20 standards by BitGo(the company that launched wETH on TRON blockchain in January 2021) so that users can participate in DeFi and Dapps of TRON ecosystem.

👉 wETH of Ethereum is created for using it in all ERC-20 projects and this is used only in ethereum based projects whereas wETH of Tron is created for using in all TRC-20 projects and this can only be used in only tron ecosystem projects.

👉 ETH is minted into wETH of ethereum directly on the same ethereum blockchain whereas wETH of tron is minted by help of custodian for original token, ( the custodian role in this case is performed by BitGo firm.)

👉 Unwrapping of wETH of ethereum is simple process and requires less time because it is done on same blockchain whereas the unwrapping of wETH of tron is difficult and requires time because it is not the same blockchain.

👉 Unwrapping wETH of ethereum does not require any burning because of same blockchain but burning of token is required to get ETH from wETH of tron because the original token is with the custodian of token and burning is required for get original token and to maintain the balance of network.

👉 A very small gas fees is charged for conversion wETH to ETH on ethereum blockchain because all operations happens on same network but gas fees is high in tron blockchain for conversion.


Question : 3

Make an investment of at least $ 5 of a Wrapped token. Explain the process with screenshots. You can use the JustSwap platform.

Answer :


For this question, I am using my Huobi Pro account. I am using Huobi Pro app for this question.

1️⃣ First we click on market and afterward we search for our token.

2️⃣ Here, as you can see we get three trade exchanges for wBTC. Select any one as you wish.


WhatsApp Image 2021-10-15 at 3.41.20 PM.jpeg

Screen from my Huobi Pro Account

WhatsApp Image 2021-10-15 at 3.42.59 PM.jpeg

Screen from my Huobi Pro Account


3️⃣ I here choose WBTC/USDT so, I click on that and after that click on buy option.

4️⃣ Now we select amount of token that we want to buy. I here, want to buy WBTC worth $5.9. And click on buy option.


WhatsApp Image 2021-10-15 at 3.46.28 PM.jpeg

Screen from my Huobi Pro Account

WhatsApp Image 2021-10-15 at 3.55.59 PM.jpeg

Screen from my Huobi Pro Account


In this way we successfully buy WBTC worth $5.9 You can check my transaction details here :



WhatsApp Image 2021-10-15 at 3.58.38 PM.jpeg

Screen from my Huobi Pro Account


Question : 4

Explain in detail the Wrapped token of the TRON Blockchain. Show screenshot.

Answer :


Tron blockchain is one of the popular blockchains. It always tries to add more features for its users. Tron blockchain has recently, in August 2020, launched its own Decentralised exchange known as Justswap, where its users are able to exchange different tokens under TRC-20 standards. This exchange will also provide other benefits like rewards by joining liquidity pools and many more.

Among the many benefits, Justswap also provides Tron based platform for wrapped tokens. This comes after an agreement between Tron blockchain and the BitGo company that governs wrapped tokens. Afterward, Tron blockchain introduced many wrapped tokens. Some of them are : WETH, WBTC, WBTT, WTRX, WDOGE, and many more.

Both WETH and WBTC are launched on Tron ecosytem after an agreement with BitGo in Janurary 2021. The value of both the tokens is pegged with original asset means 1 BTC = 1 WBTC and similarly, 1 ETH = 1 WETH.

Let us now explore some of the wrapped token from Tron blockchain. For this purpose we need to go to Tron Blockchain Explorer site. Click here for Tronscan Website . After going to site we need to click on tokens option as we want to explore wrapped tokens :


4.1.png

Tron blockchain explorer : Source : Tronscan website


After clicking on tokens option we get the list of all the tokens on Tron blockchain. There are 52,061 tokens on Tron blockchain. We now need to search wrapped tokens in search bar :


4.2.png

List of wrapped tokens on Tron : Source : Tronscan website


After searching for wrapped tokens we get the list of all the wrapped token on the tron blockchain. Now we need to select the wrapped token that we want to explore. Let us explore some of them one by one.


Wrapped BTC


4.3.png

WBTC details, Source :


After getting the list of all the wrapped tokens we now select and click on WBTC token to get its details. After clicking on WBTC we get the details of token such as total supply, holders, transfers, price, market cap and all other details. Some of details i get during the homework task are :

Issue Time : 2020-12-17 08:14:50 (UTC)

Market cap : 5,923,819.27 USD / 5,923,819.27 USD

Price : 59303.420711 USD ≈ 614547.912216 TRX

Total Supply : 99.89000964WBTC

Holders : 433 Addresses


Wrapper ETH


4.4.png

WETH details, Source :


After clicking on the WETH from the wrapped tokens list you will get the details about wrapped ETH. This token has same value as original ETH. You can check MANY details of WETH like price, volume, market cap, issue date. Some of the details that I get are :

Issue Time : 2020-12-17 08:14:58 (UTC)

Market cap : 9,103,746.03 USD / 9,103,746.03 USD

Price : 4555.064295 USD ≈ 47203.099233 TRX

Total Supply : 1,998.598800000000000000WETH

Holders : 296 Addresses

In this way you can explore as many tokens as you want to explore in tron blockchain. You just need to search for the token and click on that to get all the details about the token.


Question : 5

What is to mint a Wrapped token? What is burning a Wrapped token? What is your function? Create an example explaining the process.

Answer :


What is to mint a Wrapped token?


Minting is the process by which one crypto asset A is converted into wrapped asset A. The value of wrapped and original asset is pegged in 1:1.

We need minting process to wrap any asset so that that token can be used on blockchain other than native blockchain. For this process to done, there is a need of custodian for the asset who take the original asset and then wrapped it equivalent to original token. The custodian in this case is the company called BitGo.

Following are the steps followed during the minting process :

👉 The user who wants to convert his token A to wrapped token A , must make a request for conversion to merchant.

👉 Now, the merchant needs to verify the user's identity through the process of KYC(Know Your Consumer) an AML(Anti Money Laundering)

👉 Now, the user need to send token A to merchant.

👉 Merchant now starts minting procedure by requesting from custodian the amount of wrapped token A in 1:1 ratio according to original token A transferred by user.

👉 The custodian will receives and blocks the token A by making confirmations of transaction and proceeds to mint wrapped token A.

👉 Now, custodian will send the wrapped token A to merchant , and merchant will proceed to release the token to user.


What is burning a Wrapped token?


The burning process is just the reverse of the minting process. In this process, the wrapped token is converted into the original token. When the user do not requires the wrapped token any longer he needs the burning process to get its original token.

The steps followed during the burning process are :

👉 The user of wrapped token will make a request by claiming their original tokens from merchant.

👉 Now, the merchant will make a request to custodian for burning of wrapped token.

👉 The custodian now confirms this transaction requested by merchant and sends the same amount of original token requested to later execute the burning process of wrapped token.

👉 Now, the merchant will release the original token to user.


What is your function?


In blockchains, it is sometimes difficult to make transactions between different assets because they belong to another blockchain. To solve these problems wrapped token were created, they have same value as original token but they can be used to make transactions on other blockchains other than native blockchain.

Wrapped tokens allow an asset of one blockchain to live on the other blockchain. Wrapped tokens also helps to increase liquidity to exchanges. They also bridge the gaps between different blockchains. Wrapped token also provides speed to transactions and lower gas fees.

Wrapped tokens helps users of different asset to use DeFi and Dapps system. And, when someone did not require the wrapped token he/she will burn the token and get the original token.


Create an example explaining the process.


Let us assume that Mr. X has 10 BTC in his account and he wants to take part in project that runs on Ethereum blockchain. But, he can't join the project directly becuase BTC are not compatible with ethereum blockchain. So, Mr. X has knowledge about the wrapped tokens and he goes to his merchant(any exchange) and make a request for 10WBTC for his 10 BTC.

Now, the exchange will start the minting process with BitGo custodian and mints 10 WBTC for Mr. X from his 10 BTC.


mint.png

Minting process diagramMinting process Image source :


Now, Mr. X needs to signs the transaction for completion of transaction. As soon as he signs, he gets the 10 WBTC in his account. Now, he can participate into the project that runs on Ethereum blockchain.

After, the project is completed. Mr. X wants his original 10 BTC and he did not require 10 WBTC. So, he goes to his exchange and makes a request for 10 BTC for which he deposited 10 WBTC.


burn.png

Burning process diagramBurning process Image source :


This time the exchange started the burning process with help of BitGo and now Mr. X signs the transaction. As soon as Mr. X signs the transaction exchange release the 10 BTC to Mr.X account.

So, in this way minting and burning are done easily.


Conclusion


Wrapped tokens are created to bridge the gaps between different isolated blockchains. Now, all the blockchains can connect with the help of wrapped tokens. Users can participate in different DeFi and Dapps projects of other blockchains with help of wrapped tokens.

Wrapped tokens have pegged their value with the original tokens means they have same value as original token. The benefit of wrapped token is that it can live in another blockchain. Wrapped tokens will help to provide more liquidity to exchanges, also increases the transactions speed, and lowers the gas fees.

Thank you for reading my post. I hope you get something new from my post.

Thank You !!!

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