What is WETH (WETH)?

Deep Dive

1. Purpose & Value Proposition

ETH, Ethereum’s native currency, isn’t natively compatible with ERC-20 token standards, limiting its use in DeFi smart contracts. WETH solves this by wrapping ETH into an ERC-20 token, enabling ETH to interact with decentralized exchanges (e.g., Uniswap), lending protocols (e.g., Aave), and NFT marketplaces. This standardization allows ETH holders to participate in complex financial activities like liquidity provision or collateralized loans without selling their ETH.

2. Technology & Architecture

WETH operates via smart contracts that lock ETH and mint an equivalent amount of WETH. The process is reversible: users can “unwrap” WETH to reclaim ETH at any time. This 1:1 peg is maintained through transparent, auditable contracts, ensuring no dilution or slippage. By conforming to ERC-20, WETH gains compatibility with thousands of Ethereum-based dApps, streamlining interactions across the ecosystem.

3. Ecosystem Fundamentals

WETH is foundational to Ethereum’s DeFi landscape:
- Trading: Required for ETH swaps on DEXs like Uniswap, which only support ERC-20 tokens.
- Collateral: Used in lending platforms (e.g., Compound) to borrow stablecoins or other assets.
- Cross-Chain Bridging: Projects like Hedera integrate WETH to enable cross-chain liquidity (e.g., via Stargate Finance).

Conclusion

WETH is Ethereum’s bridge between its native currency and the ERC-20 ecosystem, unlocking ETH’s utility in DeFi’s tokenized world. Its role as a liquidity backbone highlights its critical importance—could future Ethereum upgrades render WETH obsolete, or will it remain a staple for interoperability?