What is WETH (Wrapped Ether)?
If you have ever used a decentralized exchange (DEX), there’s a good chance you’ve seen ‘WETH’ as one of the popular cryptocurrencies you can swap. WETH stands for Wrapped Ether. Ether (ETH) is the native cryptocurrency to the Ethereum blockchain, which is the oldest and most popular blockchain with general purpose smart contracts. In this article we go into more detail about what exactly WETH is, and why there is a need for it.
How WETH Relates to ETH
WETH is an ERC-20 token on Ethereum that represents 1 Ether (ETH). ETH is used to pay for transactions on the Ethereum blockchain. For example, swapping between cryptoassets on an Ethereum-based DEX will cost some small amount of ETH. The two main differences between WETH and ETH are that WETH cannot be used to pay for transactions and ETH is not an ERC-20 token. The next section will cover why there is a need to make an ERC-20 compatible version of ETH.
What is the need for Wrapped Ether (WETH)?
All of decentralized finance (DeFi) is built upon smart contracts, which can be thought of as decentralized programs. Those smart contracts are designed to handle ERC-20 tokens. ERC-20 is a token standard, a kind of blueprint that is universally recognized not only on the Ethereum blockchain, but many other compatible blockchains such as Avalanche and Polygon. The ERC-20 standard allows the efficient building of software, for example getting rid of custom code that would be needed to handle each new token. Since ETH is the Ethereum native currency, and because it preceded the development of the ERC-20 standard, it isn’t ERC-20 compatible. This means custom software would have to be written on every DeFi decentralized application (DApp) in order to accept ETH. Instead, a smart contract was written that envelopes ETH in an ERC-20 wrapper so that any DApp with ERC-20 support can effectively support ETH.
How is WETH created?
The technical details of how WETH is created are quite simple. Anyone can deposit ETH into the WETH smart contract, the smart contract then creates and returns the same amount of WETH. This process also works in reverse. Deposit WETH into the contract, and it will destroy the WETH and return an equal amount of ETH. No one controls the smart contract, and the smart contract ensures any WETH created is backed by an equivalent amount of ETH. This makes WETH almost indistinguishable from ETH in terms of market price.
WETH vs. ETH
| Feature | ETH | WETH |
|---|
How to Convert WETH Back to ETH
Unwrapping is the reverse of wrapping. You send WETH to the contract's withdraw function, usually through a wallet or a decentralized exchange that offers a "wrap" or "unwrap" button, and the contract burns the WETH and sends back the same amount of ETH. There is no exchange rate and no slippage, but you pay a normal network fee in ETH, so keep a little ETH in your wallet before you unwrap.
WETH on Layer 2s and Other Blockchains
WETH is just as common on Ethereum layer 2 networks such as Arbitrum, Base and Optimism, where it wraps that network's own ETH in the same way. On blockchains that do not use ETH as their native currency, a token called "WETH" is usually ETH that was moved over through a bridge. That version depends on the bridge that issued it and has a different contract address from WETH on Ethereum, so check which network and contract you are dealing with before you send or trade it.
Is WETH Safe?
The main WETH contract on Ethereum has run since December 2017. Its code is short, has been reviewed many times and cannot be changed by anyone, and it holds the ETH that backs every WETH in circulation. The bigger risks come from outside the contract: bridged WETH on other chains carries the risk of the bridge that created it, and scammers sometimes create fake tokens using the WETH name. Always check the token's contract address on a block explorer.
WETH on Ethereum is an ERC-20 token, so it can be held in any self-custody wallet that supports ERC-20 tokens, including the Bitcoin.com Wallet app.
Conclusion
WETH exists because ETH came before the ERC-20 standard. Wrapping ETH gives it the same interface as every other token, which is why WETH sits behind most ETH trading pairs on decentralized exchanges and many DeFi apps. It is always worth exactly one ETH on Ethereum, and anyone can wrap or unwrap it at any time for the cost of a network fee.