Definition ∞ UTXO wrapping is a process where unspent transaction outputs (UTXOs) from a Bitcoin-like blockchain are represented as tokens on another blockchain, typically a smart contract platform. This allows Bitcoin’s value to be utilized in decentralized applications on different networks. It enables interoperability while maintaining the original asset on its native chain.
Context ∞ UTXO wrapping, exemplified by wrapped Bitcoin (wBTC), addresses the limited smart contract functionality of certain blockchains by extending their asset utility to other ecosystems. Security concerns related to the custodial nature of some wrapping solutions are a frequent discussion point. Ongoing developments aim for more decentralized and trustless wrapping mechanisms to enhance cross-chain liquidity and security.
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