Debunking WETH Fear, Uncertainty & Doubt
Is WETH FUD Warranted?
Background
In recent times, some analysts have expressed concerns about the solvency of wrapped assets like RenBTC, and GBTC which are somewhat centrally controlled. Someway somehow, WETH entered the conversation with suggestions that the wrapped version of the Ether token is subject to risk of insolvency. This dashboard will try to debunk such fear, uncertainty, and doubt (FUD), by looking verifiable on-chain data. Furthermore, we’ll analyze how WETH is very important in the Ethereum mainnet.
Introduction To WETH
WETH is the ticker symbol for Wrapped Ether (0xC02aaA39b223FE8D0A0e5C4F27eAD9083C756Cc2) where wrapped means native Ether converted to ERC20. Native Ether is slightly different from regular ERC20 tokens hence, they are not suitable for decentralized finance. When Ether is wrapped, it is stored in a smart contract and the user receives equivalent amount of WETH. Thus Wrapped ETH is pegged 1:1 to native ETH and can always be unwrapped at any time. Now let’s look at the numbers behind WETH.
There are about 3.71 million WETH minted in circulation as at this point of writing with an estimated value of about 4.4 billion United States dollars. This amount of WETH is held by some 651,000 unique Ethereum wallets. WETH currently represents about 3% ETH’s total market share signifying that ETH is largely preferred in its native form.
The next line of reasoning now is what are some of the on-chain uses of WETH that even warrants 3% market share of all ETH in circulation. First, we have to understand that ETH is not a regular asset compared to other ERC20 tokens. Looking at WETH holders over the past 3 months we can see consistency and stability. Users need WETH to use DeFi, directly and indirectly.
The area chart above shows the activity of WETH in decentralized finance (DeFi) platforms such as Balancer, Curve, Sushiswap, and Uniswap. Since inception, there has been utility for WETH even after ETH’s price crash this year. Since WETH’s price tracks ETH in the ratio of 1:1, there is neither risks of premium for WETH holders when there’s a depeg.
The third iteration of Uniswap (v3) is responsible for the most use of WETH in its business with over 19.1 trillion in transaction count. Curve follows with over 16.5 trillion in transaction count. Although Uniswap v2 has only 340 billion in transaction count, it has processed the most WETH volume worth $82 million WETH.
Surprisingly, when you look at transfers between native ETH and WETH, which is displayed in the chart above, WETH generally dominates in the ratio of 2:1. One would think that WETH is only used in complex DeFi strategies but is also the preferred form for regular transfers for most users.
Key Takeaway
We have learned about how WETH is created via a secure smart contract transaction with fully backed ETH so there is no inherent risk of insolvency or depeg. WETH was created out a need to give ERC20 properties to native ETH which was created slightly different before the advent of ERC20s. As a result, we have shown that WETH is a real utility for decentralized finance applications like Uniswap, Curve, Balancer, and Sushiswap.