A cryptocurrency token that is linked to the value of another token on a different blockchain. A Wrapped Token allows the transfer of value or other usage across different blockchains.
This allows for crosschain functionality—in other words, interoperability between non-compatible cryptocurrencies and blockchains. This creates additional use cases for the token that is wrapped. For example, a Wrapped Token can be lent or borrowed on its non-native blockchains. A Wrapped Token can (typically, but not always) be redeemed (or “unwrapped”) for the asset to which it is pegged. Wrapped Tokens typically require a custodian—an entity that holds an equivalent amount of the asset as the wrapped amount. Custodians for this purpose can be a vendor, a multisig wallet, a DAO or a smart contract.