Assets · 31 / 86 · 2 min
Wrapped assets
A wrapped asset is a stand-in. A token on one chain claims to represent a coin locked somewhere else. Someone, or some contract, can fail to unlock it.
The token is a claim on a lock. If the lock fails, the token is a story.
A worked case
A token on one chain is treated as the coin it names. The custodian of the lock is hacked. The token still has the ticker. The unlock does not come. The name was never the coin.
The stand-in
You do not hold the original coin. You hold a claim. The claim is only as good as the lockbox and the people who watch it.
Who can unmake it
A custodian can refuse, get robbed, or freeze a list of addresses. A bridge contract can be buggy. When the wrap breaks, the stand-in price splits from the original.
Say the name of the wrapper out loud. If you only know the ticker, you do not know what you hold.
The stand-in and the vault
A wrapped asset is a token on one chain that claims to be a coin locked on another. Wrapped bitcoin, issued through BitGo and partners for a long time, is the large example: bitcoin sits with a custodian, and a token on Ethereum stands in for it. The token trades. The bitcoin does not move until someone redeems. If you hold the token, you hold a claim on that custodian and that contract, not a key to the bitcoin.
Bridges are the same shape with more drama. Wormhole, a bridge between Solana and Ethereum, lost more than 320 million dollars of tokens in February 2022. Reuters reported that Jump, a trading firm tied to the bridge, replaced the funds the next day. Users of the stand-in were made whole by a firm's balance sheet, not by the chain. That was a choice the firm could make. It is not a feature you should count on.
Say the name of the wrapper out loud. If you only know the ticker, you do not know what you hold. The unlock is a company or a set of signers. The chain you are trading on cannot mint the original coin.
Read it yourself
- Reuters: Jump replaced Wormhole's stolen funds (February 2022)
- Bitcoin white paper, for the coin being wrapped
These links are the record. They are not a recommendation, and they are not instructions. A news story or a court paper can still be wrong about a detail. The check does not change because a famous name is in the story.
Apply the check
Open a question. The line is about this topic. It is not a verdict that anything is safe.
The wrapper's fee, and whoever drained the lock.
The custodian or the bridge contract.
That custodian. The chain you are on cannot mint the original coin.
Check yourself
Is wrapped bitcoin the same as bitcoin in your own wallet?
No. It is a claim on a lockbox.
After this you can name the lockbox behind a wrapped coin before you treat it as the original.