Since the inception of Bitcoin in 2009, a lot has happened in the crypto sphere with many developments coming up along the way. One of such developments is the wrapped token. A wrapped token is described as an asset that is primarily hosted on the Ethereum blockchain with a price similar to that of another underlying asset.
The assets do not need to exist on the same blockchain or a blockchain at all. Thus, a wrapped token is an ERC-20 token that has a value that is identical to another asset that it represents, either by getting backed one-to-one with the underlying asset or through a smart contract.
For example, wrapped bitcoin is a token that is worth the same as one BTC at any time. That is the case since a smart contract algorithm reproduces its price instantly and also regulates the underlying fund with the supply and demand data acquired from the user transactions. Wrapped token users get the same amount of value in exchange for their money. The value that they get is wrapped up in an asset that is more readily mobilized by the decentralized applications (DApps).
How they work
In simple terms, every wrapped token is backed by an equal amount of the underlying asset or currency. It is also covered by various organizational roles together with algorithmic checks and balances. DApps can process wrapped token transactions much quicker since they are not done across multiple blockchains.
Also, the users can transact any time confidently since the wrapped tokens’ trustless nature is preserved primarily by an infrastructure that backs every one-to-one with the underlying assets. The complex model is adequate to offer the DApp users native access to other cryptos without burdening the involved blockchains in the processing of any DApp transaction.
All it takes to execute these transactions is one minimal gas fee on Ethereum. The governance over these wrapped tokens is done through the assignment of essential roles to organizations. These organizations act predominantly as custodians who hold the underlying assets and mint or even burn the new wrapped tokens as needed. Merchants offer a medium to wrapped token buyers while the users are the owners of these tokens.
Zcash is a crypto that can be transacted entirely anonymously. A transaction can be executed with no address information visible on the public ledger records. Thus, it is a special and easily transactable virtual token. It simply derives value from its ability to let private transactions take place within a public blockchain.
Zcash relies on a sophisticated zk-SNARKS system that benefits from the zero-knowledge proofs. Notably, the transactions in Zcash can occur with algorithmically considerable certainty of their validity without making public any of their contents. The token is popular among the privacy-focused individuals since payments can be made to Zcash wallets that are verifiable and safe yet there is no broadcasting the amounts or addresses involved.
These Zcash transactions can be sent either with the “t-addresses” or “z-addresses”. The t-addresses are transparent while the z-addresses are semi-transparent. The transactions are done this way to adjust their level of metadata contained. All the involved applications that use Zcash treat every coin equally in spite of its transaction history just like cash.
Why Zcash created a wrapped token
The new Wrapped Zcash token will offer the Ethereum DApp users the coin’s anonymity benefits and a reliable way of investing in Zcoin. Eventually, the method will boost the token’s market. Wrapped Zcash is a strategy for Zcash to be used effectively within the financial applications developed on Ethereum.
It opens a reliable bridge from one ecosystem to the other. The two-way street is expected to benefit both the Ethereum and Zcash users. The Zcash users can transact and invest within the many decentralized financial applications built on ETH.
This link also brings an effect on the demand and supply of Zcash. That effect can eventually turn into a considerable tailwind. The privacy benefits that come with Zcash supported by its t-addresses and z-addresses provide Etehreum users with new ways for decentralized finance (DeFi) applications. The DeFi applications limit the publication of identifying any information held in transaction data. Also, it simultaneously processes auditory and compliance standards.
Types of wrapped tokens that exist
The wrapped tokens are mostly the ones that are supported on other blockchains but are also recognized as stablecoins pegged to the dollar. Most of the first wrapped assets were fiat-backed stablecoins. They are often supported on Ethereum since the platform is the biggest DeFi ecosystem. Some of the stablecoins that have their prices pegged to the US dollar include TrueUSD, Coinbase’s USDC and Tether (USDT).
Also, many other fiat-backed stablecoins exist and they mostly operate on the Ethereum blockchain. Some of eh other fiats that back the stable coins include yen, euro, USD, and Yuan. The digital assets are backed accordingly through the reserves. The coins are fed in depending on the demand of online crypto exchanges and bigger institutional investors.
These market players want to quickly exchange fiat money into crypto and manage their money within a given platform. Thus, it becomes as easy to deposit dollars into DeFi applications and blockchain wallets as it does to have a reliable counter currency. Therefore, the wrapped tokens provide traders with much-needed relief from the crypto asset volatility.
After Zcash, other cryptos are starting to launch their wrapped versions of their tokens on Ethereum in large numbers. It is worth mentioning that interoperability is an important consideration for the solutions that need to be taken seriously.