Definition ∞ Wrapped assets are cryptocurrencies or other digital assets that are tokenized on a different blockchain than their native network. This process involves locking the original asset in a smart contract and issuing an equivalent “wrapped” version on the target chain. They enable interoperability and allow assets to be used in decentralized finance protocols on otherwise incompatible blockchains. Wrapped Bitcoin is a common example.
Context ∞ The utility of wrapped assets is increasing as the demand for cross-chain functionality grows within the digital asset ecosystem. While offering expanded liquidity and access to various DeFi applications, they also introduce centralization risks associated with the custodian of the locked native asset. Security audits and transparent custodianship remain critical concerns for these interoperability solutions.
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