The Rise of Ethereum dApps
In most cases, when talking about wrapped coins, people talk primarily about Ethereum tokens of the ERC-20 standard. For instance, Wrapped Bitcoin (wBTC) is a token equal to the value of one BTC at any given moment, since the smart contract algorithm reproduces its price in real time and adjusts the underlying fund using supply and demand information obtained from user transactions. In exchange for their money, the users of the wrapped tokens receive an equivalent amount of value "wrapped" in an asset. Why is this needed?
Let's look at a specific example. Suppose you have XMR and want to trade it on the Uniswap decentralized exchange. Since Uniswap is built on Ethereum, it only supports ERC20 tokens. Since XMR works on a completely different protocol, in order to trade in a pair of XMR/any DeFi token traded on Uniswap, the user must first exchange XMR on an exchange or instant swap service to, say, wETH (a funny thing — ETH itself is not ERC20 compatible, but it's another story to tell), and only then buy the required DeFi token on Uniswap.
In addition to the direct inconvenience in the form of a multitude of actions, this procedure is associated with the additional fee for the exchange of XMR to ETH. Instead, if we have a tokenized version of XMR (wXMR), one would be able to trade directly wXMR/required token pair, though this requires liquidity in both pairs. One can read how decentralized exchanges work in our previous article.
Indeed, the development of decentralized finance to date is mostly related to Ethereum. The TOP 5 protocols (Maker, Aave, Compound, Curve Finance, Uniswap), largest in terms of locked funds, are built and operate on the Ethereum blockchain. The total market for DeFi applications on Ethereum is estimated at about $40 billion (according to DeFi Pulse) and continues to grow steadily.