Wrapped Ethereum is safe. Explained

Anxieties have been circulating in the cryptocurrency world after it was claimed over the weekend that Wrapped Ethereum tokens may be in danger of losing their 1:1 value versus ETH. These fears originate from accusations that the Wrapped Ethereum tokens may be at risk of losing their worth

 

Jokes Encased in Ethereum Cryptocurrency During the last twenty-four hours, Twitter users have been cracking jokes about the current situation with Wrapped Ethereum, but not everyone is in on the joke.


A number of well-known members of the cryptocurrency community, such as Hsaka, banteg, and CL, have recently made increasingly bold assertions that the Wrapped Ethereum token (wETH) used by the Ethereum network is in some way depegging or being abused.

"wETH hack went unnoticed since 2019," stated a pseudonymous Yearn Finance lead developer who goes by the name banteg. "after investigating more than 90 million deposit and withdrawal events," he continued, "I've found a supply discrepancy between the total supply wETH contract reports and the actual outstanding wETH." After that, he published the following: "The contract seems to have 1 wei more than it owes. The question "How is it possible?"


wETH is a coin that is utilized in numerous smart contracts and on blockchains that are not related to Ethereum. Its goal is to maintain a 1:1 parity with ETH at all times. It is easy to think that a failure would have devastating ramifications for the cryptocurrency industry given the widespread use of the token throughout the numerous ecosystems that employ cryptographic currencies.

At the very least one newspaper organization believed the statements without further investigation. This morning, early in the morning, Bloomberg published a report indicating that cryptocurrency analysts were expressing "concerns" regarding Wrapped Ethereum. As soon as people of the cryptocurrency community began posting it around Twitter in a satirical tone, the article was promptly revised.

Getting Your Head Around wETH Wrapped Ethereum is not issued by a single authority like Circle or Tether; rather, it is generated by a number of different smart contracts. Manually inserting ETH into a smart contract and "wrapping" it in order to receive the equal amount of wETH in return is one way that Ethereum users can "wrap" their ETH. After that, individuals are able to convert their wETH into ETH whenever they choose to do so. OpenSea is only one of many various protocols and platforms that now offers the ability to wrap ETH into wETH.

UNI, MKR, and LDO are some examples of coins that are part of the Ethereum ecosystem. One benefit of wETH is that it is an ERC-20 token, just like these other coins. Because of this, it possesses the same qualities as these tokens and enables smart contracts to process ETH in the same manner in which they would process any other ERC-20 token without the need for any modifications to the underlying technology.


To reiterate, in contrast to USDC and USDT, the wETH token does not have a single custodian, so the token itself does not present any kind of systemic risk to the cryptocurrency space. If the ETH that is backing the wrapped token is lost by the specific custodian of the wrapped token, however, it is theoretically possible for some wETH tokens to lose their value.

Since the leading cryptocurrency exchange FTX collapsed spectacularly in a matter of days at the beginning of November, the crypto space has been rife with rumors of systemic risks. These rumors have been spreading like wildfire. The event resulted in a chain reaction of insolvencies in various entities connected to FTX in some manner or another. These entities included BlockFi, Voyager, Genesis, and Digital Currency Group, among others. However, the concerns regarding wETH losing its peg or being exploited can be written off as yet another example of the typical gallows humor that is prevalent within the cryptocurrency community.


Ojike Stella

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