What Is Wrapped XRP (wXRP) and How Does It Work?

TL;DR

Wrapped XRP is a token pegged to XRP that can be used on blockchains other than XRP Ledger. The wrapped asset is exchangeable 1:1 with XRP held in reserve by a custodian that facilitates wrapping XRP and unwrapping wrapped XRP. 

The price of wrapped XRP is pegged to XRP due to arbitrage. When the price of wrapped XRP is higher, traders wrap the cheaper XRP and then sell wXRP, lowering its price. When the price of wrapped XRP is lower, traders buy and unwrap wXRP and sell XRP, increasing wXRP’s price. This creates a steady peg between the two tokens.

Wrapping XRP allows you to use the DApp ecosystem of a different blockchain and diversify your portfolio on that chain. If you want to get started, you can purchase Wrapped.com’s ERC-20 Wrapped XRP (wXRP) via Binance. The reserves of wXRP are managed by the licensed custodian Hex Trust, and you can begin wrapping XRP by signing up for an account with Wrapped. You can use wXRP to stake in liquidity pools by providing it in a token pair on platforms including Uniswap and Sushiswap.

Introduction

A typical cryptocurrency portfolio is likely to have coins and tokens across multiple blockchains. However, managing and investing all these assets can be tricky, especially when blockchains aren’t interoperable. One way to overcome this is by using wrapped tokens to bridge coins from one chain to another. While wrapped versions of Bitcoin (BTC) and Ether (ETH) are already familiar sights on Decentralized Finance (DeFi) platforms and exchanges, we now have a new wrapped asset to work with: Wrapped XRP (wXRP).

What is wrapped XRP?

Wrapping XRP allows you to use XRP on blockchains other than its native XRP Ledger. For example, XRP wrapped on Ethereum would enable you to transfer, stake, and exchange wXRP with Ethereum DApps and wallets. 

Each wrapped token can be unwrapped and converted to the original XRP at a 1:1 ratio. The wrapped token is also pegged to the price of XRP and mirrors its price movements. The token symbol wXRP refers specifically to Wrapped XRP on Ethereum created by Wrapped. XRP can also be wrapped on other blockchains through alternative wrapping providers.

How does wrapped XRP work?

To maintain its peg to XRP, each wrapped XRP is backed up by a single XRP in reserves. When users wrap their XRP, they typically send their coins to a smart contract that provides the wrapped tokens. The XRP is stored and then returned when someone else unwraps their wrapped token.

This ability to freely convert between wrapped XRP and XRP maintains the peg, just like BUSD and the US dollar (USD). When wrapped XRP’s price sinks below XRP’s price, traders will purchase the cheaper wrapped XRP and unwrap it for XRP to sell. This arbitrage will increase demand for wrapped XRP and reduce its supply, raising its price until it reaches peg. If wrapped XRP rises above XRP’s price, traders will wrap XRP to sell. This action will increase wrapped XRP’s selling pressure and supply, reducing its price until it’s pegged.

Why do we need to wrap XRP?

Wrapping XRP provides several advantages for both XRP holders and users on the target blockchain:

1. Wrapping enables access to DeFi protocols and DApps on other blockchains. For example, Ethereum has a huge, well-developed DeFi ecosystem, and XRP holders will be able to stake and use their tokens in new ways. This benefit creates even more use cases for XRP.

2. Investors who only use the Ethereum blockchain can diversify their portfolios with XRP. Managing assets across multiple blockchains takes time and often requires different crypto wallets. XRP is a popular large-cap coin, and wrapping will bring it a new audience who can access the coin natively on their chosen blockchain.

Who are Wrapped, and what is Wrapped XRP (wXRP)?

Wrapped is a blockchain project that provides audited wrapping services across multiple blockchains and coins. The team consists of Tokensoft and its custodians (Anchorage, Hex Trust, and Coinmetro) who handle the reserves needed to collateralize wrapped tokens. 

Wrapped already manages a basket of wrapped tokens and has offered ERC-20 Wrapped XRP on Ethereum since December 2021. wXRP’s reserves are held by Hex Trust, a licensed and insured custodian in Asia, and you can easily trade the token on Binance.

How to wrap XRP and unwrap wXRP?

If you want to wrap XRP or unwrap wXRP, you’ll need to create an account with Wrapped using this Typeform. Wrapped will then be in touch with more details on how you can start converting your XRP and wXRP.

Which DeFi apps can I use wXRP with?

If you’re looking to invest your wXRP, Ethereum has a wide range of DeFi DApps to explore. You can join or create a liquidity pool with a wXRP pair on almost any Decentralized Exchange (DEX). By providing liquidity, you can begin earning fees from users who swap using the pool. 

However, don’t forget that impermanent loss can lead to a decrease in your deposited funds if the pair’s price ratio changes. One possibility is to stake via SushiSwap in their wXRP/wETH and wXRP/USDC pairs. Using an established pool with higher liquidity can reduce the risk of impermanent loss. Uniswap also has pools running you can join with wXRP and another token in a pair.

Conclusion

Wrapping tokens is an excellent step in improving cross-chain functionality and interoperability. If you’re an Ethereum DeFi fan, you now have the chance to experiment with holding and investing in XRP. If you’re an XRP holder, there’s a huge amount of opportunities to explore now that you have access to the Ethereum ecosystem. No matter which group you belong to, make sure to use a trusted wrapped token that is auditable.