A wrapped token is a digital asset that represents another cryptocurrency on a different blockchain. It allows a coin that normally exists only on its native network to be used across multiple ecosystems. For example, Bitcoin cannot operate directly on Ethereum, but wrapped Bitcoin gives users a token that mirrors Bitcoin’s value while functioning on the Ethereum blockchain. This creates flexibility and opens the door to new use cases.

Wrapped tokens are backed one-to-one by the original asset. When someone wraps a token, the underlying coin is locked by a custodian or smart contract, and an equivalent wrapped version is issued. When the user wants to convert back, the wrapped token is burned and the original asset is released. This system keeps the supply balanced and preserves trust.

The main purpose of wrapped tokens is cross-chain compatibility. They make it possible to use assets from one blockchain in another chain’s applications, such as decentralised finance platforms, liquidity pools or lending protocols. This improves liquidity, increases utility and helps different blockchain ecosystems interact more smoothly.

Wrapped tokens also support faster transactions and lower fees when moving assets between networks. They allow traders and developers to work with familiar assets while taking advantage of features that may not exist on the original chain. Because of this, wrapped tokens have become an important tool in improving interoperability across the broader crypto landscape.