At first glance, ETH and WETH might seem interchangeable, but in reality, they serve different purposes and understanding the difference is key to navigating DeFi.
What is ETH?
Let’s start with ETH, which stands for Ether, the native cryptocurrency of the Ethereum blockchain.
Ethereum is a decentralized, open-source blockchain that enables the creation of smart contracts and decentralized applications (dApps). Ether (ETH) serves multiple functions within the Ethereum ecosystem, such as:
- Payment for transaction fees for transactions on the Ethereum blockchain or its L2 blockchains
- Staking
- Participating in DeFi protocols like lending, borrowing, and trading
ETH is the most well-known and widely used cryptocurrency after Bitcoin, and it’s the backbone of the entire Ethereum network. You can think of ETH as the fuel that powers the Ethereum blockchain.
However, when it comes to interacting with smart contracts, decentralized exchanges (DEXs), and other DeFi protocols, there are certain limitations to ETH, as it does not follow the standard used in DeFi applications.
What is WETH?
WETH stands for Wrapped Ether, or ETH that has been wrapped into a token that conforms to the ERC-20 token standard.
The ERC-20 standard is the technical specification that defines how tokens on the Ethereum blockchain should behave, making them interoperable with a wide range of dApps, wallets, and smart contracts.
Why Wrap ETH?
ERC-20 tokens can be easily traded and used in DeFi applications, while ETH cannot always be directly used in all of these protocols.
For example, decentralized exchanges (DEXs) like Uniswap and SushiSwap require ERC-20 tokens for liquidity pools, and some smart contracts expect tokens to be ERC-20 compliant.
When you wrap your ETH, you’re essentially exchanging it for an ERC-20 token that has the same value and is fully backed 1:1 by ETH.
This makes WETH compatible with the broad range of DeFi protocols that only accept ERC-20 tokens.
How to wrap ETH to WETH
Wrapping ETH is a simple process – in fact, you can do it through most Ethereum-based wallets or DeFi platforms that support the feature such as MetaMask.
When you wrap your ETH, you send it to a smart contract that locks your ETH and then issues an equivalent amount of WETH in return.
You can then use your WETH in various DeFi protocols, including DEXs, lending platforms, and liquidity pools.
Conversely, you can also unwrap WETH back into ETH at any time through the same smart contract. This is done on a 1:1 basis, so for every WETH you have, you can get back the same amount of ETH.
Key Differences Between ETH and WETH
Now that we know what ETH and WETH are, let’s take a closer look at the key differences between the two:
| Feature | ETH (Ether) | WETH (Wrapped Ether) |
|---|---|---|
| Blockchain Standard | Native asset on the Ethereum blockchain | ERC-20 token (wrapped version of ETH) |
| Interoperability | Not ERC-20 compliant, so it’s less compatible with DeFi protocols | Fully compatible with DeFi protocols that accept ERC-20 tokens |
| Purpose | Used for transactions, gas fees, staking, and more | Used to enable ETH to participate in DeFi and dApps that require ERC-20 tokens |
| Convertibility | Can be used directly on the Ethereum network | Can be converted 1:1 into ETH (wrapped and unwrapped) |
| Use in DeFi | Not always directly supported by DeFi protocols | Can be used in liquidity pools, decentralized exchanges, and other DeFi services |
When Should You Use ETH vs WETH?
The decision to use ETH or WETH largely depends on what you want to do within the Ethereum ecosystem:
- Use ETH when you need to pay for gas fees or interact directly with the Ethereum network without needing to engage with DeFi protocols or dApps that require ERC-20 tokens.
- Use WETH when you’re interacting with a DeFi protocol or decentralized exchange that requires ERC-20 tokens. If you’re adding liquidity to a pool, trading on a DEX, or staking, you’ll likely need WETH.
Conclusion
In summary, ETH and WETH serve different, yet complementary, roles in the Ethereum ecosystem.
ETH is the native cryptocurrency of the Ethereum blockchain, and it plays a crucial role in paying for transactions and securing the network.
WETH, on the other hand, is an ERC-20 version of ETH that allows you to use your ETH in decentralized finance applications that require ERC-20 tokens.