Crypto Wrapping Process: What It Is and Why It Matters in DeFi

When you hear about crypto wrapping process, a method of representing one blockchain’s asset on another blockchain while maintaining its value. Also known as token wrapping, it’s what lets you use Bitcoin on Ethereum without moving your actual BTC. Think of it like exchanging a $100 bill for a $100 gift card—you still have the same value, but now you can spend it in a different store.

This isn’t magic. It’s a smart contract lock-and-mint system. When you wrap Bitcoin into WETH, a tokenized version of Ether that follows the ERC-20 standard and is used across DeFi platforms, your BTC gets locked in a vault, and an equal amount of WETH is created on Ethereum. The same thing happens with WBTC, Wrapped Bitcoin, the most widely used wrapped asset that bridges Bitcoin’s liquidity to Ethereum’s DeFi ecosystem. Without this, you couldn’t lend BTC on Aave, swap it on Uniswap, or earn yield in Curve pools.

But wrapped tokens aren’t just for Bitcoin. They’re used for Solana tokens on Ethereum, BNB on Polygon, even stablecoins crossing chains. That’s why ERC-20, the most common token standard on Ethereum that defines how tokens interact with wallets and smart contracts matters so much—it’s the universal language that lets wrapped assets talk to DeFi apps. Without ERC-20 compatibility, wrapping wouldn’t work at scale.

Still, it’s not risk-free. If the custodian holding the original asset gets hacked or goes rogue, your wrapped tokens could lose their backing. That’s why you’ll see posts here about shady exchanges like LocalTrade or fake airdrops—people try to trick you into wrapping tokens through unsafe platforms. Always check who’s holding the underlying asset. Is it a trusted multisig? A decentralized bridge? Or just a solo developer with no audit?

And while wrapping unlocks new opportunities, it also adds layers of complexity. You’re no longer just holding a coin—you’re holding a representation of it, managed by code, with potential delays, fees, and counterparty risks. That’s why understanding the crypto wrapping process isn’t just technical—it’s a survival skill in DeFi.

Below, you’ll find real-world examples of how wrapping affects token value, what happens when bridges fail, and which wrapped assets are actually worth using. No fluff. Just what works, what doesn’t, and how to avoid getting burned.