Wrapped token
A wrapped token is a token on one network that represents an asset native to another, backed by the original asset held by a custodian or locked in a smart contract. Apps that call the SODAX API give their users cross-network access with no wrapped assets to manage, and assets keep their canonical name on every network where SODAX has whitelisted them.
What it refers to
A wrapped token is a token on one network that represents an asset native to another network, or a native coin repackaged in the token standard of its own network, and is meant to be redeemable for the original (often searched as wrapped crypto). The original asset is held by a custodian or locked in a smart contract, and the wrapped token is created to stand for it.
Wrapped tokens are often created by bridges: the bridge locks the asset on the source network and issues a token that stands for it on the destination network.
Why this concept exists
An asset native to one network cannot be used directly on another, and some assets do not fit the token standard that apps on their own network expect. Wrapping gives them a form those apps can hold and trade.
A wrapped token is not the same asset as the original. What it is worth to its holder depends on the arrangement behind it: the custodian or contract holding the original, and the ability to redeem. Several wrapped versions of the same asset can exist on one network, each from a different issuer, which splits liquidity between them.
What this changes for system design
Each wrapped version adds an asset to track, a backing arrangement to rely on and its own pool of liquidity, so a system that works across networks has to decide which form of an asset a user ends up holding.
On SODAX, assets go by their canonical name on every network where SODAX has whitelisted them: ETH is ETH, BTC is BTC, SOL is SOL. Apps that call the SODAX API give their users cross-network access with no wrapped assets to manage, across 20+ networks, including native Bitcoin.
Related terms
- Bridge: where wrapped tokens often come from
- Native Bitcoin: native versus wrapped BTC
- Asset whitelisting: how an asset enters SODAX
- Cross-network transfer: the same asset on another network
- Liquidity fragmentation: why many versions split liquidity