Why is WETH unlikely to crash? What is the difference between WETH and WBTC?

PANews · 2022-11-28T10:10:01.000Z

As Genesis thundered and Grayscale GBTC decoupled significantly, the WBTC/BTC exchange ratio also fell slightly below 1. Under various adverse external conditions, FUD further spread to WETH. Under the jokes of various celebrities, some users were misled into thinking that WETH was risky. Let’s talk about the conclusion first. It is almost impossible for WETH to explode. The pictures circulated on the Internet about the exchange ratio of ETH and WETH in Uniswap being not 1 may come from P pictures or counterfeit coins issued by oneself. Why is it impossible for WETH to have a thunderstorm? The full name of WETH is Wrapped Ether, which is encapsulated ETH. The contract that encapsulates ETH into WETH is very simple and almost impossible to make mistakes. This contract has existed for many years and holds billions of dollars of ETH. Users can exchange ETH for WETH or WETH for ETH at any time at a ratio of 1:1. Commonly used DEXs such as Uniswap also provide entrances to exchange.

With the collapse of Genesis and the significant decoupling of Grayscale GBTC, the WBTC/BTC exchange rate also fell slightly below 1. Under various unfavorable external conditions, FUD further spread to WETH. Under the jokes of various big Vs, some users were misled into thinking that WETH was risky.
Let me first state the conclusion. It is almost impossible for WETH to explode. The pictures circulating online showing that the exchange ratio between ETH and WETH in Uniswap is not 1 may be photoshopped or counterfeit coins issued by themselves.
Why is it impossible for WETH to crash?
WETH stands for Wrapped Ether, which is wrapped ETH. The contract for wrapping ETH into WETH is very simple and almost impossible to make mistakes. Moreover, the contract has been in existence for many years, saving billions of dollars of ETH. Users can exchange ETH for WETH or WETH for ETH at any time at a 1:1 ratio. Commonly used DEXs such as Uniswap also provide an entry point for exchange.
It can also be seen from the Ethereum blockchain browser Etherscan that as of the afternoon of November 28, the total amount of WETH issued was 3,799,267, and the address also held exactly the same amount of ETH.
Why do you need WETH?
Since ETH and WETH can be exchanged completely 1:1, why do we still need WETH?
In the on-chain operation of Ethereum, careful friends may find that when using ERC-20 tokens to interact with new contracts, authorization operations must be performed first, but ETH does not need to be used. The two follow different standards. ETH can be used as fuel fees on Ethereum, but it was born before the ERC-20 format and is not an ERC-20 standard token. For some DeFi applications that only accept ERC-20 tokens, ETH that is not in this format cannot be accepted, so WETH in the ERC-20 format appears.
For some contract developers, directly using WETH can save development time without having to develop additional contracts that support ETH. For example, if you want to use ETH to provide liquidity or as collateral for lending, you may need to convert ETH into WETH of the ERC-20 standard first.
Differences between WETH and WBTC
Although the names of WETH (Wrapped Ether) and WBTC (Wrapped Bitcoin) look similar, the principles of their issuance are completely different. PANews has also previously written an article detailing the relevant mechanisms of WBTC.
Because native BTC exists on the Bitcoin network, to use it in Ethereum’s smart contracts, the only way is to cross-chain native BTC to the Ethereum network.
Alameda Research, which has already gone bankrupt, was once the largest merchant of WBTC. Some people are worried that WBTC will go bankrupt, but this worry is unnecessary. Merchants and custodians of WBTC on Ethereum are controlled by a multi-signature contract, and the keys of the multi-signature contract are held by well-known institutions in the crypto field. Kyber's CEO Victor Tran proposed on GitHub on November 25 to migrate WBTC Big DAO to a new signature contract, change the number of voters from the original 11/18 to 8/13, and the Blockfolio (FTX) address related to FTX will be deleted. New members include B.Protocol, Badger, Balancer, BitGo, Chainlink, Compound, Gopax, Krystal, Kyber, Loopring, Multichain, Ren, and Tom Bean.
Therefore, WBTC is essentially a cross-chain issued BTC anchored currency, which is controlled by multiple signatures and is relatively safe. WETH is the ERC-20 version of ETH, which can be swapped through a simple Wrapped Ether contract without the need for a complex cross-chain process. No one can control the funds in WETH, and it is almost impossible for problems to occur.