In-depth essays · #32 / 50 · On-Chain Finance (DeFi), Stablecoins & RWA
Why Wrapped Assets (WETH, WBTC, cbBTC) Exist: Putting ETH and Bitcoin Inside ERC-20 Containers
Why native ETH needed an ERC-20 wrapper and how custodial and threshold bridges bring Bitcoin into DeFi
Step inside any DeFi shop in Ethereum City and you will quickly encounter WETH (Wrapped ETH) and WBTC (Wrapped Bitcoin). Why wrap a native asset inside another token?
1. Why Native ETH Needed WETH: Predating the ERC-20 Standard
Ethereum’s native currency, ETH, was created at genesis in 2015—before the community standardized the ERC-20 token interface (transfer, approve, transferFrom).
Rather than writing separate code paths in every DEX and lending contract for native ETH and ERC-20 tokens, developers created the trustless WETH contract: deposit 1 ETH to mint 1 ERC-20 WETH, and unwrap 1:1 at any time.
2. Bringing Bitcoin into Ethereum City: How WBTC and cbBTC Work
While WETH lives entirely inside a trustless Ethereum contract, WBTC and Coinbase’s cbBTC bridge assets from a completely separate blockchain—the Bitcoin network.
Regulated custodians lock 1 native BTC in audited Bitcoin vaults and mint 1 ERC-20 WBTC or cbBTC on Ethereum, allowing Bitcoin holders to borrow stablecoins on Aave or trade on Uniswap without selling their BTC exposure.
3. Trust Models: Smart Contract Wrappers vs. Custodial and Threshold Bridges
Understanding the wrapper matters: WETH has zero custodian risk, whereas WBTC and cbBTC rely on institutional custody and Proof-of-Reserve audits (alongside decentralized threshold alternatives like tBTC).
4. Spotting WBTC Across Ethereum City’s Districts
In Ethereum City, WBTC storefronts stand prominently in Downtown Ethereum, Arbitrum, and Base—showing how billions of dollars of Bitcoin liquidity actively work inside Ethereum’s DeFi economy.
Related districts in the city
Related glossary terms
This essay is an explainer written to help you read the city; it is not investment advice. Facts on this page are as of 2026-10 and may change. If you spot a mistake, please tell us through the contact page.