Wrapped XRP (wXRP) is a crypto-asset tied to XRP (XRP) and can be used on blockchains other than Ripple’s native XRP ledger. Ripple is a blockchain-based global payment system that provides enterprise crypto solutions, and XRP is the native currency of the Ripple network. The identical-value version, wXRP, can be used for financial payments and settlements on other blockchains.
This article explains why we need wXRP, how to buy wXRP, use cases of wXRP, and the purpose and security of wXRP tokens.
What are packaged cryptocurrencies?
Wrapped cryptocurrencies are tokens used as cryptocurrencies on blockchains other than the original blockchain they were built on. The value of the wrapped cryptocurrency is the same as the original cryptocurrency (1:1). This allows cryptocurrencies like Bitcoin (BTC), Ether (ETH) or XRP to be used on chains other than their native blockchains, increasing their utility.
The purpose of packaged cryptocurrencies is to solve the cross-chain liquidity problem of decentralized finance (DeFi). If each cryptocurrency stays in its own ecosystem, growth depends solely on demand in that ecosystem. It would essentially work in a closed system.
Wrapped Crypto solves this problem by providing blockchain interoperability between different cryptocurrencies and blockchains. This opens up opportunities to improve cross-chain liquidity for DeFi ecosystems and increase the utility of crypto assets.
Related: Wrapped Crypto Tokens Explained
What is Packaged XRP (wXRP)?
XRP is a cryptocurrency that runs on the native XRP ledger and facilitates transactions on the Ripple network. One can buy XRP to fund transactions, invest or exchange crypto on Ripple. For a transaction using XRP on a blockchain other than Ripple, Wrapped XRP is used.
The wrapping of XRP increases the scope and usefulness of XRP, which can be used on multiple blockchains other than its native XRP ledger. For example, wXRP on the Ethereum blockchain would allow its users to turn XRP into a high-yield asset by trading, staking, pooling or using Ethereum wallets, decentralized applications (DApps), gaming and more to diversify their portfolio.
Is Wrapped XRP (wXRP) the same as XRP?
Wrapped XRP is a 1:1 equivalent of XRP. Its value is pegged to XRP due to arbitrage, much like a stablecoin like USD Coin (USDC) or Binance USD (BUSD) is pegged to the US dollar. WXRP is fully collateralized and held by a custodian ensuring each wXRP is backed by a corresponding XRP Reserve. Both packing and unpacking follow a 1:1 ratio. Apart from the transaction fees on the blockchain, there are no other costs.
When users wrap their XRP, they simply send their cryptocurrency to a smart contract that provides them with the wrapped tokens. The XRP is stored and then returned when someone else unwraps their wrapped token. One can always choose to unwrap their wrapped XRP token. This gives users the freedom and ability to freely convert between wXRP and XRP as per their requirements and the blockchain they are on.
How does packaged XRP (wXRP) work?
By wrapping XRP, XRP can be used on blockchains other than XRP Ledger. But how exactly does that work? In the case of packaged cryptocurrencies, there needs to be a custodian that guarantees the same value of the original crypto as its packaged version.
The custodian can be anyone, a decentralized autonomous organization (DAO), a smart contract, multisig wallets, or simply a rule of code. The manager packages the crypto, called minting, and reverts to the original version, called burning. For XRP, the smart contract serves as a custodian.
When a user wraps XRP, the smart contract makes the wrapped version available to them for use on other blockchains, while the original XRP is stored with a custodian. It comes back into circulation when someone unwraps their wXRP. The original form is then sent back to its original blockchain, XRP Ledger. Therefore, each wXRP is backed by a single XRP in reserve, which helps maintain its bond.
The price value is coupled due to trading arbitrage. When wXRP falls below the price of XRP, traders see an opportunity for arbitrage profits and buy the cheaper wXRP to unwrap and sell for a profit. This increased wXRP demand would reduce supply and increase price, which would help achieve pegging. As the price of wXRP rises above XRP, trading pressure to sell wXRP will also increase, increasing supply and leading to a price decrease until it reaches 1:1 lock-in.
Why do we need Wrapped XRP (wXRP)?
XRP packaging has many benefits for XRP holders. Some of them are:
interoperability
XRP wrapping improves blockchain interoperability for XRP holders. It allows XRP holders to enjoy trading benefits across different chains. It also offers the ability to access services of different DApps or DeFi protocols, allowing for better use cases and more returns.
liquidity
A key benefit that comes with using wrapped tokens is the increase in liquidity. XRP is a popular cryptocurrency that is listed on various centralized exchanges (CEXs) and decentralized exchanges (DEXs).
For XRP holders, this increasingly opens up opportunities to diversify portfolios and ensure liquidity, especially in Ethereum’s developed DeFi ecosystem, which offers numerous options. CEXs like Binance and DEXs like Uniswap and SushiSwap offer wXRP pool pairings for staking, swapping, lending, etc.
What are the use cases of packaged XRP?
Packaged XRP use cases are increasing every day as the crypto landscape evolves. Two common and interesting use cases are:
- DeFi Lending: Wrapped XRP makes borrowing and lending easier as it can work outside of XRP Ledger and in DeFi lending protocols like Aave, MakerDAO, and Compound.
- DeFi Trading: Margin trading is favored by experienced crypto traders because it increases their potential profits. WXRP can be used by DeFi traders for margining on decentralized exchanges.
Aside from that, advances are being made in the areas of yield farming, automated market maker pools, collateralization of loans using packaged cryptocurrencies, and more. As cross-chain bridges and interoperability increase, use cases for packaged cryptocurrencies will continue to grow.
How to pack and unpack XRP?
Being able to package their crypto is important for XRP holders who want to use their XRP for other blockchains. TokenSoft’s Wrapped.com is the leading provider of wrapped cryptocurrencies and one can use its services to wrap or unwrap XRP. Working with Hex Trust as custodian, they are providing the infrastructure to mobilize wXRP on the Ethereum blockchain.
Create an account with your Typeform, and conversion details will be reflected from wrapped.com. For SushiSwap, wrapped.com offers direct integration with MetaMask Wallet. XRP can also be wrapped on different blockchains via alternative wrapping service providers such as ApexSwap, which forms a bridge from Avalanche to the XRP Ledger.
Are wrapped tokens secure?
Wrapped tokens have made cryptocurrencies efficient and useful. Protocols like Ethereum convert packaged cryptos into ERC-20 tokens so users can conduct transactions securely. However, one of the potential vulnerabilities for wrapped tokens is the custodian holding the underlying asset. If the trustee goes rogue and unlocks the original XRP and gives it to someone else, the token holders of the wrapped XRP would be left with a worthless asset.
The custodian is a centralized entity in this transaction and should be a trusted party. In the case of XRP, Ripple has selected Hex Trust, Asia’s leading digital asset custodian, as its trusted party. Such vetted networks and their custodians tend to support guarantees and insurance to prevent wrongdoing with the aim of ensuring the security of wrapped tokens.
Going forward, it will be interesting to explore decentralized smart contract managed bridges as custodians, and they are a topic of interesting reflection and discussion in the blockchain world, especially since wrapped tokens started playing a significant role in the growth of DeFi services to play.
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