Important fast food
- Crypto Twitter is spreading jokes about WETH being exploited or losing touch with it.
- At least one media publication — Bloomberg — has taken the jokes at face value.
- Encapsulated Ethereum does not have a single guardian and does not pose a systemic threat to the Ethereum ecosystem.
Over the weekend, concerns ran rampant in the cryptocurrency community due to claims that the Wrapped Ethereum tokens could be at risk of losing their value 1:1 against ETH. But these claims are little more than elaborate jokes about the recent infection scare.
Ethereum wrapped jokes
Crypto Twitter has been full of jokes about the state of Wrapped Ethereum over the past 24 hours, but not everyone is on board.
Many prominent figures in the crypto community, including HasakahAnd the pantageAnd the CLAnd the He recently shared increasingly brazen claims that the Ethereum network’s encapsulated token (wETH) is somehow being hacked or exploited.
“Hacks have gone unnoticed since 2019,” said Banteg, lead developer of Yearn Finance, “After investigating more than 90 million deposit and withdrawal events, I found a supply discrepancy between the total supply with contract reports and the actual pending supply.” Then he wrote: “It looks like the contract contains 1 wei more than is owed. How is that possible?”
wETH is a token that aims to stay at 1:1 parity with ETH; It is used in many smart contracts and on blockchains other than Ethereum. With the token being so widely used across so many crypto ecosystems, it would be easy to think that failure would have dire consequences for the crypto space.
At least one news organization has taken these allegations at face value. Bloomberg wrote an article early this morning Indicates Cryptocurrency analysts have “concerns” about encapsulated Ethereum. The article was quickly changed when members of the crypto community began sarcastically sharing it on Twitter.
Encapsulated Ethereum is not issued by a centralized party, such as Circle or Tether, but through various smart contracts. Ethereum users can manually “top up” ETH by putting it into a smart contract and get the same amount of WETH in return. They can then exchange WETH back for ETH whenever they want. Many protocols and platforms offer ETH wrapping in 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 allows smart contracts to treat ETH in the same way as any other ERC-20 token without the need for any technical modifications.
Since wETH does not have a single custodian (again, unlike USDC or USDT), the token itself poses no systemic risk to the crypto space. However, it is theoretically possible for some tokens to lose value if their custodian loses ETH support for the encapsulated token.
The cryptocurrency space has been riddled with rumors of systemic risk ever since leading cryptocurrency exchange FTX collapsed spectacularly in a matter of days in early November. The incident triggered a chain reaction of bankruptcies at various entities related to FTX in one way or another, including BlockFi, Voyager, Genesis, and Digital Currency Group. But worrying about WETH losing its stick or being exploited could be brushed off as another expression of the crypto community’s typical sense of humor.
Disclaimer: At the time of writing, the author of this piece owns BTC, ETH, and many other crypto assets.