Why are wrapped tokens important?

Different blockchains offer entirely different functionality, thus they cannot communicate with one another. With wrappen tokens, bridges can be created between two different blockchains, IE BTC & ETH (these two blockchains would not know what is happening on the other blockchain). Wrapped tokens enhance interoperability between different blockchains, as the underlying cryptocurrencies can essentially go cross-chain. 

Especially for those wanting to utilise the growing expansion of decentralised platforms, wrapped tokens prove an increased fluidity and operability to holders. With a wrapped token, a user can trade far more efficiently and with fewer restraints, adding liquidity to a pool in which users can typically move cryptocurrencies (or assets) across multiple blockchains. In doing so, they also gain access to a variety of applications on deFi platforms (such as Ethereums), engaging in other income earning activities such as staking and yield farming, coming at far less costs than associated with transferring original tokens.

How does it work?

Let’s take WBTC as an example:

1. You would engage in a “wrapping request” for X BTC (let’s say 1), to a custodian via a merchant
2. The merchant then takes charge by acting as an intermediary and then sends the 1 BTC to the given custodian for minting. This will then be sent as a wrapping request to the given deFi platform (or application).  
3. The deFi platform would then approve the wrapping request, minting 1 WBTC (as you sent 1 BTC).
4. The custodian would then release this 1 WBTC to the merchant, with the merchant then releasing this 1 WBTC to your holdings.
5. Now, this 1 WBTC can be traded on whatever deFi platform or application you have chosen to engage with.