What is rap in digital currency? Review of Wrapped Tokens and how it works
Each blockchain network has native tokens such as Ethereum, Bitcoin, Solana, etc. Each of these native tokens, based on its own standards Blockchain Act. Therefore, they cannot be placed on another blockchain.
To bypass such a limitation, a wrapped token can be used. Rapid Token is actually the original token, with the standard of another blockchain, which allows you to operate in other blockchains. In the rest of this article, we will explain more about the concept of Rapid Token.
For a better understanding of the concept The token has been rappedWhat is a token article? read the
Introduction of rap in digital currency
To begin with, it is better to mean the word Wrap Let’s talk in Persian. This word in Farsi translates as wrapped or putting something in a cover to hide. So, it can be for Wrapped Token, considered the meaning of tokens with a different cover. Each blockchain network has native tokens that cannot communicate with other networks. Currently, there is no way to communicate between blockchains. For this reason, it is possible to bypass this limitation through a wrapped token, and native tokens of one blockchain can be transferred to another blockchain. In fact, one can consider the function of Rapid Tokens as Cross Chain. Rapid Token acts as a bridge between blockchains.
In fact, wrapped tokens are a type of native cryptographic custom tokens. These tokens can be transferred on external blockchains. For example, a native token for the blockchain Solana, when it is rapped, it becomes possible to transfer on another blockchain. The reason for creating rapped tokens is to perform inter-chain transactions and add interoperability with other blockchains. In any case, all the technical terms related to the rap in digital currency are for greater interaction and communication between blockchains.
Rapid tokens are divided into two categories according to their withdrawal type.
- Rapped token with non-cash withdrawal: You can exchange these rapped tokens for original token.
- Rapped token with cash withdrawal: This type of rapped token cannot be exchanged for other assets and you only need cash assets to exchange them.
What is the reason for creating Wrapped Token?
With the creation of the rapped token, submissions to other networks became very easy for the first time. You may not know, but the native tokens of a blockchain are limited by the specific standards of that blockchain. That is, how token multiplicationThe circulation and storage of that token is determined based on its blockchain standards. With these interpretations, you cannot easily send, receive or Token exchange Do it. So, this issue can be considered as a limitation for the world of digital currencies. To remove this limitation and create a direct connection between all blockchains, no solution has been proposed yet. But in this situation, rapid tokens come to your aid.
In fact, one of the reasons for creating these Rapid Tokens is to remove the limitation in communication between blockchains. For example, the Ethereum blockchain has great advantages and is highly scalable. For this reason, many traders want to exchange their tokens on this network. So, your token to Rapid Token Ethereum network They convert to use the benefits of the Ethereum network with their native token.
Let’s look at another example. Native Ethereum blockchain tokens cannot be directly exchanged for Bitcoin, nor can native Bitcoin tokens be exchanged for Ethereum. Because these native tokens are from two different blockchains with different mechanisms and standards. In this situation, you need some of Tokens BTC Based on the standards of the Ethereum network, with a new name, called Bitcoin has been rapped (WBTC) create. This rapped token can be exchanged for any digital currency based on the Ethereum network.
Mechanism of rapped tokens
To create a rapped token, you need three things: an investor, a trader, and a custodian. First, you need to exchange tokens for a certain amount of original tokens that you have, to receive the wrapped token from trading platforms such as AirSwap ,CoinList And AAVE apply Now, the original tokens are locked in a smart contract and the rapped tokens are transferred to a new network like Ethereum. For every Rapid token, there is a native token that is locked in the vault of trading platforms. That is, if you need 3 rapid bitcoin tokens, you must lock 3 native bitcoin tokens in your trading platform.
In a similar process, you can easily restore Rapid Token to its original state. For this, you need to send a request to the same trading platform unpad (Unwrapped) Send tokens. Now your rapped tokens will be burned and your locked native tokens will also be released.
Let us further explain the creation and mechanism of Rapid Tokens with an example. Imagine you have some native Bitcoin tokens and want to trade them on the Ethereum network. As you know, this is not possible. So, you can convert your bitcoins into rapped tokens. For this, you must first contact an operator such as trading platforms. Multi-signature wallets Or apply for DAOs. During this request, you need to lock your original tokens in the desired operator and receive WBTC (Wrapped Bitcoin Token) in return. WBTC actually has a value token equivalent to the original Bitcoin token, but with Standard ERC-20 it works.
Price correlation of rapped token or original token
In principle, Rapid Tokens should not be considered a fundamental equivalent for the price of original Tokens. Because the rapped token loses its value faster in a down market. That is, if you have a BTC and a WBTC that have exactly the same price value as each other, over time your Rapid Token will face more price reduction in a down market. In fact, a rapped token requires three layers of assurance. Therefore, these two tokens can only have an equivalent value to each other for a short period of time. As soon as it is in a bear market, the value of Rapid Token will decrease faster.
Uses of Rapid Tokens
Since these days, the need to use tokens from one network on another blockchain has increased, Rapid Tokens have also received more attention than before. For this reason, one of the most basic uses of the rapped token is investment It is in them. For example, investing in WBTC can become a profitable investment in the future. Investing in rapped tokens is exactly like real tokens. It means that you buy the rapped token at the same price as the original token. For a proper investment, you can use prediction sites and future analysis of a token. The following are the reasons why you should invest in Rapid Tokens.
- Ethereum network rap token, you can access to Decentralized applicationsgives games and DEXs.
- Yield Farming (Yield Farming) One of the ways to earn money and get rewards is from locking your assets. You can save your rapped tokens as yield farming and earn money from saving it.
- Since the scalability of the Ethereum network is greater than that of the Bitcoin network; When you convert your Bitcoin tokens to Rapid Token on the Ethereum network, Scalability It also increases.
The difference between wrapped and stablecoin tokens
Stablecoins are different from rapped tokens. Stablecoins are digital assets with price fiat currencies they change For example, USDT is a stablecoin that moves up and down with the price of the dollar. But the rapped token is connected to another main digital currency locked in a virtual vault. In this case, the stablecoins are linked to a fiat currency and the rapped token to a main token. Another difference that exists is the support of these two types of digital currencies Rapped tokens, is more than stablecoins. For example, a USDT reserve consists of a combination of cash, treasuries, bonds, etc. assets. But a rapped token has the same value as its original token.
What is rap writing in digital currency? Review of Wrapped Token and how it works for the first time on Wallex blog. appeared.