Wrapped UTXO

Definition ∞ A wrapped UTXO is a Unspent Transaction Output (UTXO) that has been converted or represented in a way that allows it to be used within a different blockchain or smart contract environment. This process typically involves locking the original UTXO on its native chain and issuing a corresponding token on another chain, facilitating interoperability. It enables assets from one blockchain to interact with the functionalities of another.
Context ∞ The concept of wrapped UTXOs is particularly relevant in the context of cross-chain interoperability and the expansion of decentralized finance across multiple blockchain networks. Discussions often center on the security and efficiency of the wrapping mechanisms, the collateralization requirements, and the potential risks associated with bridging assets between disparate ledgers. The development of standardized wrapping protocols is a key area for future advancement.