What is Wrapped Token?
The wrapped token is a cryptocurrency pegged to the value of an initial asset class. The initial assets will usually be foundation coins like BTC, ETH, and NEAR,... but sometimes they can be gold, stocks, shares, or real estate. ( Wrapped token is a cryptocurrency tied to the value of an initial asset class )

The original assets will be "wrapped" back into the digital currency vault to ensure value. Afterward, a wrapped token will be generated for trading on other platforms. Here, the original asset is like collateral, and the wrapped token is the check you receive for trading after you have collateralized your original asset.

Understandably, a wrapped token works similarly to a stablecoin (USDT, USDC, ...) because stablecoins are calculated based on the value of fiat money. With wrapped tokens, the base asset is usually other blockchain's foundation coins.

So, to put it simply, a wrapped token is a token that represents a cryptocurrency according to another blockchain's standards and has the same value as the original cryptocurrency. Wrapped tokens can be used on another blockchain and redeemed for the original cryptocurrency.

For example: To trade Bitcoin on the Ethereum network, you need to convert BTC => wBTC.

 

Wrapped token classification
Wrapped tokens include two types: Convert to cash (Cash-settled) and Convert to other assets (Redeemable).

Cash-settled (Cash-settled)

With the cash-converted wrapped token, the Wrapped token cannot convert directly to the original asset.

For example: Shares are tokenized based on the actual number of shares and then put on a cryptocurrency exchange; on that exchange, they can only be traded in BUSD or USDT pairs and cannot be exchanged for claims on the exchange.

Redeemable (Redeemable)

With a wrapped token convertible to another asset, we can exchange it for its native asset (held by a trusted custodian).

For example, wETH can be converted to ETH, wBTC can be converted to BTC with the same value (1:1) and transaction fees.