Wrapped Token

A wrapped token is a token issued on one chain to represent an asset that lives somewhere else, so that asset can be used by contracts that would otherwise not accept it. Wrapped bitcoin on Ethereum is the familiar case: a custodian or bridge holds the native coin, mints a matching ERC-20, and burns it when a holder redeems. Wrapped ether exists for a different reason, because ether itself predates the ERC-20 standard and contracts expect that interface. The wrapper is only as sound as whatever holds the backing: a custodial wrapper carries counterparty risk, a bridge-minted one carries the bridge's smart contract risk, and if the backing is lost the wrapped token can trade far below the asset it names.