The cryptocurrency space became just a little tighter after developers created a cross-chain bridge between the Ethereum and Tezos blockchains. After the start of the wrap protocol created by Bender Labs, ERC-20 and ERC-721 tokens based on Ethereum can be made Tezos compatible so that Ether (ETH) holders can interact with the Tezos ecosystem.
Token wrapping has become a common way of connecting users of different blockchain platforms together. This is best illustrated with Wrapped Bitcoin (WBTC), an ERC-20 version of Bitcoin (BTC) that runs on Ethereum.
The wrap protocol wraps Ethereum-based tokens into the Tezos FA2 token standard so that they can be used as one-to-one representations without technical difficulties or price differences.
Like Ethereum, Tezos has its own decentralized financial ecosystem. Unlike Ethereum, which has to wait about a year before moving to a consensus algorithm to prove stake, participation in Tezos is already widespread and offers ETH holders a viable early chance of generating passive income.
Users of the wrap protocol participate in its control through the use of the WRAP token, which is compatible with both Tezos and Ethereum and operates on both the FA2 and ERC-20 infrastructure.
Wrapped Bitcoin’s success is evident in its market cap of $ 8 billion, which represents the value of BTC hosted on Ethereum. It is currently the fifth largest Ethereum token – behind Tether (USDT), Uniswaps UNI, Chainlinks LINK and USD Coin (USDC) – and the 19th largest cryptocurrency project overall. Just under $ 200 million worth of WBTC is currently on Ethereum’s most popular DeFi protocol, Uniswap.
Temporarily converting tokens to other blockchains is also a way to avoid high fees when the original chain is subject to excessive transaction costs. This may have been the case with WBTC at a time when Ethereum fees were only a fraction of Bitcoin fees. This is no longer the case due to Ethereum’s increasing user base and subsequent congestion, resulting in extravagant transaction costs as the average fees rose to over $ 30.
Current Tezos blockchain statistics show that over $ 1 million worth of transactions were sent for $ 0.01-0.15, suggesting a possible immediate use case for the wrap protocol. However, it faces competition from Layer 2 protocols that already meet this use case for Ethereum users.
Hugo Renaudin, CEO of Tezos, said that the code-based blockchain infrastructure is more affordable for older financial systems because of its transparency and immutability, adding that he sees the work of Bender Labs as creating an autonomous bank.
“We are building Bender: a self-driving bank for an open financial system because we believe that financial markets should be open, transparent and unstoppable, and should rely primarily on lines of code and not on intermediaries,” said Renaudin.