WETH vs. ETH: What Is the Difference?

Ethereum (ETH) and Wrapped Ethereum (WETH) are integral to the Ethereum blockchain, serving distinct purposes. While ETH is the network’s native cryptocurrency, WETH functions as an ERC-20 compatible version of ETH. This distinction is important for understanding how digital assets interact within decentralized applications (dApps). The existence of WETH addresses a technical compatibility challenge, enabling ETH to participate more broadly across decentralized finance (DeFi) applications.

Understanding Ethereum’s Native Currency

Ether (ETH) is the foundational cryptocurrency of the Ethereum blockchain. It acts as the primary medium for transactions and operations across the network. A core function of ETH is to serve as “gas,” covering the computational costs required to execute smart contracts and process transactions on the Ethereum network. Unlike other tokens built on Ethereum, ETH predates the ERC-20 token standard. This native status means ETH operates under different technical specifications than standardized tokens within the Ethereum ecosystem.

The Concept of Wrapped Ethereum

Wrapped Ethereum (WETH) is an ERC-20 token designed to represent Ether (ETH) at a 1:1 value. WETH addresses a fundamental compatibility issue: ETH, as the native currency, does not inherently conform to the ERC-20 standard. The ERC-20 standard provides a common set of rules for tokens on the Ethereum blockchain, enabling seamless interaction with various dApps, wallets, and decentralized exchanges (DEXs).

WETH solves this by allowing ETH to function within this standardized framework. The “wrapping” process involves locking ETH in a smart contract, which then mints an equivalent amount of WETH. This mechanism ensures that every WETH token is fully backed by an ETH token, maintaining its pegged value. WETH is a tokenized version of ETH, engineered for interoperability within the Ethereum-based DeFi landscape.

The Wrapping and Unwrapping Process

Converting ETH to WETH, known as “wrapping,” involves interacting with a decentralized application (dApp) or a compatible cryptocurrency wallet. Users connect their Web3 wallet, such as MetaMask, to a dApp that offers wrapping services. Within the dApp’s interface, users select ETH as the asset to convert and WETH as the target asset. They then specify the amount of ETH to wrap and confirm the transaction, which incurs a gas fee paid in ETH.

The unwrapping process, which converts WETH back to ETH, follows a similar series of steps. Users connect their wallet to a dApp or wallet interface that supports unwrapping. They select WETH as the asset to convert and ETH as the desired output. After entering the amount of WETH to unwrap, the transaction is confirmed, and the associated gas fees are paid in ETH. This action burns the WETH, releasing the underlying ETH from the smart contract back to the user’s wallet.

The Role of WETH in Decentralized Finance

WETH plays a significant role in enabling decentralized finance (DeFi) protocols by providing ERC-20 compatibility for Ether. Its primary utility lies in allowing ETH to be used in various DeFi applications built on the ERC-20 standard. On decentralized exchanges (DEXs), WETH facilitates seamless trading of ETH against other ERC-20 tokens within liquidity pools. This allows users to trade diverse digital assets without needing a centralized intermediary.

WETH is also utilized in lending and borrowing protocols, where it can be supplied as collateral to borrow other cryptocurrencies or deposited to earn interest. WETH also plays a part in liquidity provision strategies, where it is often paired with other ERC-20 tokens to provide liquidity to automated market makers, allowing users to earn trading fees.