Have you ever wondered:

▪️ 𝐖𝐡𝐚𝐭 𝐢𝐬 𝐚 𝐖𝐫𝐚𝐩𝐩𝐞𝐝 𝐚𝐬𝐬𝐞𝐭 ?

Interoperability is crucial for crypto industry scalability.

The professor will delve deeper into this topic.

Let's find out in the book of truth !

Let's first revisit the classics:

Do you know the difference between a coin and a token?

For example:

• Bitcoin is a coin.

• Ethereum is a coin.

• Wrapped ETH is a token.

• Elys is a coin.

• Uniswap is a token.

Coins are digital assets that are native to their own blockchain. They are independent and operate on their own network.

Some examples :

• BTC

• ATOM

• ETH

• ELYS

Tokens, on the other hand, are digital assets that operate on an existing blockchain network.

They do not have their own blockchain to operate on but require another blockchain platform to operate.

They often rely on smart contracts and take the form of an ERC-20, CW-20, TR-20, etc.

For the reasons explained above, Bitcoin stays within the Bitcoin ecosystem, and ETH remains in the ETH ecosystem.

To enable interoperability, bridges and wrapped assets were introduced.

So, how does it work?

A wrapped asset is a tokenized version of an existing crypto Coin.

(Notice the distinction between Token and Coin is crucial.)

Typically, the original coin backs the asset, allowing the holder to redeem it for the coin at any time.

WBTC represents a tokenized version of BTC.

Wrapped tokens are commonly used in the following way:

• Deposit your BTC into a smart contract or another messaging service.

• Mint a WBTC.

• Obtain WBTC.

However, what risks are involved?

If the smart contract is compromised, redemption may not be possible at a 1:1 ratio.

For IBC protocol, the process differs slightly. It is more akin to a TCP/IP protocol.

• Lock ATOM on the source chain.

• Mint an ATOM on the destination chain.

As long as the relayers are operational (all validators oversee the relayers), you can redeem in a 1:1 ratio.

Another alternative utilized by Noble is native asset issuance.

• Deposit your USD

• Circle mints USDC

• Receive them on Noble

You can always redeem them 1:1, unlike with a bridge.

Your only risk is Circle in this example.

In simpler terms:

• When assets are wrapped, there is a risk of smart contract hacking.

• Using IBC eliminates bridge risk but introduces the risk of chain halting.

• Issuing native assets carries the risk of company default.