Wrapped XRP (wXRP) Explained
Wrapped XRP is a token that mirrors XRP and can be used on blockchains apart from XRP Ledger. A custodian that enables wrapping XRP and unwrapping the token reserves XRP at a 1:1 exchange rate to the wrapped asset.
Arbitrage is responsible for the steady peg between XRP and wrapped XRP as traders wrap cheaper XRP when the price of wrapped XRP is higher, lowering its value, and buy and unwrap wXRP when the price is lower, increasing its value.
Wrapping XRP offers access to a different blockchain's DApp ecosystem and diversifies your portfolio. You can purchase Wrapped XRP (wXRP) on exchanges managed by Hex Trust, a licensed custodian for Wrapped.com's ERC-20 token. To begin wrapping XRP, sign up for an account with Wrapped. You can also provide wXRP as a token pair in liquidity pools on platforms such as Uniswap and Sushiswap.
Basics
When managing a cryptocurrency portfolio, you may hold coins and tokens on different blockchains, but investing and managing them can be challenging due to a lack of interoperability. Wrapped tokens can be used as a solution to bridge coins from one chain to another. Wrapped versions of Bitcoin and Ether are well-known on exchanges and DeFi platforms, but now there's a new addition - Wrapped XRP.
Wrapped XRP enables users to utilize XRP on blockchains other than the XRP Ledger. When XRP is wrapped on a blockchain like Ethereum, it allows users to transfer, stake, and trade wXRP with Ethereum DApps and wallets.
The wrapped asset can be converted back to XRP at a 1:1 ratio and is pegged to the price of XRP, mirroring its price movements. Wrapped created wXRP, which is the specific token symbol for Wrapped XRP on Ethereum, but XRP can also be wrapped on other blockchains using alternative providers.
How Does Wrapped XRP Work?
The Wrapped XRP token is made by holding a corresponding XRP reserve at a 1:1 ratio. When XRP is wrapped, it is sent to a smart contract that generates wrapped tokens. The original XRP is kept safe until someone unwraps their tokens. This process helps keep the Wrapped XRP token value similar to XRP, like how USDT tracks the US dollar.
If Wrapped XRP becomes cheaper than XRP, traders buy the cheaper wrapped tokens, swap them for XRP, and sell them. This creates demand for Wrapped XRP and reduces its supply, which makes its price go up until it returns to the same value as XRP. If Wrapped XRP becomes more expensive than XRP, traders sell their Wrapped XRP by wrapping XRP. This increases its supply and lowers its price until it returns to the same value as XRP again.
Why Do We Need to Wrap XRP?
By wrapping XRP, users and XRP holders gain several advantages, including access to DeFi protocols and DApps on other blockchains, such as Ethereum's well-developed DeFi ecosystem. This new access will allow XRP holders to stake and use their tokens in new ways, creating more use cases for XRP.
Moreover, investors who only use the Ethereum blockchain can now diversify their portfolios with XRP. Managing assets across multiple blockchains is time-consuming and requires different crypto wallets, but XRP is a popular large-cap coin, and wrapping it will bring it a new audience who can access the coin natively on their chosen blockchain.
Who Are Wrapped, and What Exactly Wrapped XRP (wXRP) Is?
Wrapped is a blockchain project that mainly provides audited wrapping services for different blockchains and coins. Tokensoft and its custodians, Anchorage, Hex Trust, and Coinmetro, make up the team that manages the necessary reserves to collateralize the wrapped tokens.
Since December 2021, Wrapped has been offering ERC-20 Wrapped XRP on Ethereum, along with a basket of other wrapped tokens already under their management. Hex Trust, an Asia-based licensed and insured custodian, holds the reserves for wXRP.
How to Wrap XRP and Unwrap wXRP?
To convert XRP to wXRP or vice versa, you must first sign up with Wrapped by completing a Typeform. After submitting the form, Wrapped will provide you with additional information on how to begin the conversion process.
To wrap XRP into wXRP and vice versa:
- First, find a platform that supports wrapping XRP into wXRP and vice versa.
- Connect your XRP/wXRP wallet to the platform and ensure that you have enough XRP/wXRP to wrap/unwrap.
- Choose the amount of XRP/wXRP you want to wrap/unwrap and confirm the transaction.
- Once the transaction is complete, you will receive an equivalent amount of XRP/wXRP in your wallet.
It's important to note that the wrapping and unwrapping process can vary slightly depending on the platform you use. Be sure to carefully follow the instructions provided by the platform to ensure a successful transaction. Additionally, always verify that the platform you use is reputable and trustworthy to avoid any potential scams or fraudulent activities.
Which DeFi Apps Can I Use wXRP With?
If you're considering investing your wXRP, Ethereum's DeFi DApps present a wide variety of opportunities to explore. Decentralized Exchanges (DEXs) provide an excellent starting point, as you can either create or join a liquidity pool with a wXRP pair on nearly every platform. By doing so, you can start earning fees from users who trade using the pool.
Bear in mind, however, that changes in the price ratio of the pair can lead to impermanent loss, causing your deposited funds to dwindle. To mitigate this risk, you could stake via SushiSwap in their wXRP/wETH and wXRP/USDC pairs. Opting for an established pool with higher liquidity can also reduce the likelihood of impermanent loss. Furthermore, Uniswap has several pools running that you can participate in with wXRP and another token in a pair.
Conclusion
Investors can improve cross-chain functionality and interoperability by wrapping tokens. The availability of XRP on Ethereum provides an opportunity for Ethereum DeFi enthusiasts to explore holding and investing in XRP. Similarly, XRP holders can now explore a wide range of opportunities in the Ethereum ecosystem. It's important to use trusted auditable wrapped tokens regardless of the group you belong to.