Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Wrapped ETH depegging hoax sweeps across social media

Stock Markets Nov 29, 2022 03:30
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Wrapped ETH depegging hoax sweeps across social media

Liqudity crunch, insolvency, withdrawal freeze, depegging; these are just some of the trigger words striking fear into the heart of today’s crypto investor.

And for good reason, given these terms are attributable to the myriad of devastating collapses that have plagued the markets in 2022, from Celsius to FTX by way of Terra LUNA.

So it was with calculated malice that a few twits on Twitter began circulating a rumour that Wrapped Ethereum (wETH) had gone insolvent and depegged from ETH.

Industry figures including writer Anthony Sassal, Gnosis founder Martin Köppelmann, and even Tron founder Justin Sun joined in on the laugh.

For the seasoned crypto bro, this was an obvious joke: For reasons we’ll get into below, wETH cannot go insolvent.

But as the crypto influencer Richard Heart pointed out, the rumour could have placed less sophisticated users in financial trouble should they have taken the joke at face value.

Thankfully, no amount of Twitter tomfoolery can cause wETH to collapse (probably), but to understand why, we first need to understand what wETH is.

What is Wrapped Ethereum (wETH)?

Wrapped Ethereum (wETH) is part of a family of cryptocurrencies called ‘wrapped tokens’, of which Wrapped Bitcoin (wBTC) is the largest and most widely used.

These wrapped tokens allow for interoperability across different blockchains. For instance, although bitcoin (BTC) is the world’s largest digital asset, it is only compatible with its own blockchain, rendering it useless on the Ethereum blockchain, or any other for the matter.

However, through the magic of a smart contract, users can convert their BTC into wBTC and voila, they can now interact with Ethereum using a synthetic version of their coins.

Once they’re done, wBTC can be converted back into the original BTC on a 1:1 basis. Since the smart contract will always hold exactly one bitcoin per wBTC, the price of wBTC remains pegged to BTC.

wETH works in the same way, but it gets slightly more confusing.

Although ether (ETH) is the native coin of the Ethereum blockchain, it is not actually compatible with Ethereum applications.

Therefore, ETH holders must convert their coins into wETH to use them on their favourite Ethereum-based applications, hence why wETH is so important to the Ethereum ecosystem.

Can wETH depeg?

wETH is not a company, nor is it a centralised entity- it is a bunch of code developed by a group of Ethereum developers in order to enable interoperability.

Since there is no truly centralised custodian, unlike Celsius, Terra LUNA or FTX, your ETH should always be redeemable as and when you want.

Or course, there is always a risk that the code could be exploited, but no such incident has yet to occur.

While it is true that wBTC recently depegged by 1%, the circumstances a slightly different.

wBTC uses a centralised custodian called BitGo, and the collapsed trading firm Alameda Research was the single largest wBTC merchant, having created more than 100,000 wBTC.

wBTC also maintains its peg with BTC via arbitrageurs who trade on small price fluctuations, similar to how algorithmic stablecoins work.

wBTC’s exposure to the toxicity of Alameda Research evidently spooked arbitrageurs away from the wrapped token.

As of November 28, wBTC was less than 0.01% below the value of BTC.

Read more on Proactive Investors AU

Disclaimer

Wrapped ETH depegging hoax sweeps across social media
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email