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Gnosis CEO Explains Why $WETH Will NEVER Lose Its 1:1 Peg to $ETH


www.cryptoglobe.com 28 November 2022 22:00, UTC
Reading time: ~4 m

On 27 November 2022, Martin Köppelmann, Co-Founder and CEO of Gnosis, and independent Ethereum educator and consultant Anthony Sassano explained what Wrapped Ether is ($WETH) and why it is not in danger of losing its 1:1 peg to Ethereum ($ETH).

Here is how Binance Academy explains Wrapped Ether ($WETH):

Wrapped Ether (WETH) refers to the ERC-20 compatible version of ether (wrapping ether with other ERC standards is also possible). WETH can be created by sending ether to a smart contract where the ether is placed on hold, in turn receiving the WETH ERC-20 token at a 1:1 ratio.

This WETH can afterward be sent back into the same smart contract to be ‘unwrapped’ or redeemed back for the original ether at a 1:1 ratio. Ether, being the native currency on the Ethereum blockchain, was created before the ERC-20 standard and others standards were implemented; hence ether itself is not ERC-20 compatible and cannot be exchanged directly for other ERC-20 tokens in a decentralized manner without the mediation of a trusted third party or the addition of complex technical implementations.

Instead of implementing two interfaces (one for ether and another for ERC-20 tokens) within the same smart contract leading to unnecessary complexities, developers decided to ‘wrap’ ether to upgrade it to the ERC-20 standard in order to conveniently handle WETH and other ERC-20’s within the same contract. Wrapping ether allows the direct, seamless exchange between ether and ERC-20 tokens without the need for a trusted third-party and without incurring in unnecessary risks such as unexpected errors during transactions resulting from complex implementations.

Many Ethereum-based decentralized applications (dApps) such as decentralized exchange platforms use WETH in place of ether to facilitate the direct and decentralized peer to peer trading between ether in “wrapped form” and ERC-20 tokens under the same technical standard. Recent developments are trying to have a canonical WETH standard that could be used by all Ethereum-based dApps.

So, why did Köppelmann and Sassano feel the need to explain $WETH?

Well, the idea of $WETH losing its peg or crashing seems to have started as a joke by some bored crypto influencers:

People are joking that WETH is depegged or not backed, when it's a 64 line contract that literally holds ETH until you unwrap it and is entirely self-custodied.

Basically, making fun of people who sensationalize assets by sensationalizing a situation that could never happen.

— Hudson Jameson (@hudsonjameson) November 27, 2022

However, sadly, this turned into actual FUD, which got up picked up by some traditional media news outlets and then even more people started believing this nonsense:

Time to start talking about how the peg has been restored so the boomers have to buyback the bags they just puked.

We will create our own volatility. pic.twitter.com/jlmHzTCoWX

— Hsaka (@HsakaTrades) November 28, 2022

Initially, both Köppelmann and Sassano appear to have thought that joking about $WETH was just a bit of harmless fun, but as soon as they realized what was happening, they pointed out that they were not being serious and explained why as long as Ethereum exists, $WETH cannot lose its 1:1 peg to $ETH:

Gotta be clear for the homies since the WETH shitposting took on a life of its own

WETH is completely fine and anyone stating otherwise is joking/being sarcastic (or actually being serious because they don't understand that WETH is fine)

Stay safe frens

— sassal.eth 🦇🔊 (@sassal0x) November 28, 2022

I sincerely apologise for my WETH shitposting

I honestly thought it was harmless and that people weren't going to take it seriously (my bad for thinking this)

Will do better in the future 🫡

— sassal.eth 🦇🔊 (@sassal0x) November 28, 2022

Anyway, here was Sassano’s explanation of Wrapped Ether:

The only way anything bad could happen to WETH is if there was a bug in the Wrapped Ether contract

This is extremely unlikely because the WETH contract is very simple (only 62 lines of code) & has been around for a long time with a massive honeypot ($4.5bil sitting in it atm)

— sassal.eth 🦇🔊 (@sassal0x) November 28, 2022

As for Köppelmann, this was the joke he made yesterday about $WETH:

I hope this joke did not caused too much confusion. If you need more context find it here:https://t.co/KDN3NvdO2z

— Martin Köppelmann 🇺🇦 (@koeppelmann) November 27, 2022

And this was his explanation of how $WETH works:

To make it crystal clear: WETH is a very simple smart contract – think of it like an adapter. You will ALWAYS be able to convert ETH into WETH and WETH into ETH at a 1:1 rate without any risks. This will be true as long as Ethereum exists.

— Martin Köppelmann 🇺🇦 (@koeppelmann) November 28, 2022

accept tokens. And thus, if you want to use ETH on many contract you first have to convert it into WETH = wrapped (ETH). This is very different from ETH on any other chain (including @gnosischain or layer2, see: https://t.co/kDFUaYvwEh) which always adds some extra risks.

— Martin Köppelmann 🇺🇦 (@koeppelmann) November 28, 2022

Image Credit

Featured Image via Pixabay

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