Key Takeaways
- Crypto Twitter shares jokes about wETH being exploited or losing its link.
- At least one media publication – Bloomberg – took the jokes at face value.
- Wrapped Ethereum does not have a single custodian and does not pose a systemic threat to the Ethereum ecosystem.
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Over the weekend, fear circulated in the crypto community due to claims that Wrapped Ethereum tokens could be at risk of losing their 1:1 value to ETH. However, the claims are nothing more than elaborate jokes about the recent contamination fears.
Packaged Ethereum jokes
Crypto Twitter has been making fun of the state of Wrapped Ethereum for the past 24 hours, but not everyone is on board.
Many prominent figures from the crypto community including Hsaka, bantegAnd KL, recently shared increasingly bold claims about the Ethereum network’s Wrapped Ethereum token (wETH) being somehow disconnected or exploited.
“The wETH hack has gone unnoticed since 2019,” said the pseudonymous Yearn Finance lead developer Banteg, “after examining over 90 million deposit and withdrawal events, I found a supply discrepancy between the total supply of wETH contract reports and the actual outstanding wETH .” He then posted: “It appears the contract contains 1 whey more than it is owed. How is it possible?”
wETH is a token that aims to maintain a 1:1 parity with ETH; it is used in many smart contracts and on non-Ethereum blockchains. Since the token is widely used across various crypto ecosystems, it would be easy to believe that a failure would have catastrophic consequences for the crypto space.
At least one newspaper organization took the claims at face value. Bloomberg published an article early this morning to report that crypto analysts had ‘concerns’ about Wrapped Ethereum. The article was quickly edited when members of the crypto community started sharing it mockingly on Twitter.
Understanding WETH
Wrapped Ethereum is not issued by a centralized party, such as Circle or Tether, but by various smart contracts. Ethereum users can manually “wrap” their ETH by placing it in the smart contract and receiving the same amount of wETH in return. They can then exchange their wETH back for ETH at any time. Many different protocols and platforms offer to package ETH into wETH, including Open Sea.
The advantage of wETH is that it is an ERC-20 token, just like other coins in the Ethereum ecosystem, for example UNI, MKR or LDO. Therefore, it has the same characteristics as these tokens and smart contracts can process ETH in the same way as any other ERC-20 token, without the need for any technical adjustments.
Because wETH does not have a single custodian (again, unlike USDC or USDT), the token itself does not pose any systemic risk to the crypto space. However, it is theoretically possible that some wETH tokens could lose value if their specific custodian loses the ETH backing the wrapped token.
The crypto space has been full of rumors about systemic risks since the leading crypto exchange FTX spectacularly collapsed within days in early November. The event caused a chain reaction of bankruptcies at several entities connected to FTX in some way, including BlockFi, Voyager, Genesis, and Digital Valuta Group. But concerns about wETH losing its anchor or being exploited can be portrayed as yet another expression of the crypto community’s typical gallows humor.
Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.
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