What Is Wrapped BNB, How It Works And Applications

What is Wrapped BNB?

Binance Coin (BNB), which has been tokenized and adheres to the BEP-20 token standard on the Binance Smart Chain (BSC), is called Wrapped BNB (WBNB). Native BNB, which uses a distinct token standard, may now easily communicate with decentralized apps (dApps) on the Binance Smart Chain ecosystem with WBNB. Each WBNB token is equivalent to one BNB that is held in reserve since WBNB and BNB are essentially pegged 1:1.

Technical Details

Why Wrap BNB? (The Need for Interoperability)

Different Blockchain Standards: Native BNB is not natively adhere to the BEP-20 standard; it is utilised for petrol fees on the Binance Chain and BSC. Blockchains are governed by special regulations and standards for tokens.

DeFi Ecosystem Compatibility: Decentralized Finance (DeFi) apps are designed to work with certain token standards like BEP-20. Examples of these include lending platforms, yield farming protocols, and decentralized exchanges (DEXs). Native BNB cannot be used in these DeFi protocols on BSC without WBNB.

Bridging the Gap: Being compliant with the BEP-20 standard, WBNB serves as a “bridge” or “wrapper” that enables BNB to operate without interruption within the vast BSC DeFi network. It makes it possible to move money between blockchains more quickly.

How Wrapped BNB Works (The Wrapping Process)

Wrapping: To obtain WBNB, a user must deposit their native BNB into a designated smart contract. The BNB is then locked by this smart contract, which also mints an equivalent quantity of WBNB.

Unwrapping (Redemption): Users provide the smart contract their WBNB in order to convert it back to native BNB. After burning the WBNB, the smart contract gives the user back the appropriate quantity of native BNB.

Custodian/Smart Contract: The smart contract itself typically oversees the safekeeping of the underlying BNB, guaranteeing that WBNB is always fully supported.

Dynamic Supply: If users wrap more BNB, the supply of WBNB increases; if they unwrap WBNB back to BNB, the supply reduces. This dynamic adjustment is dependent on market demand.

Use Cases of Wrapped BNB (WBNB)

DeFi Participation: By guaranteeing BEP-20 compliance with smart contracts, WBNB allows BNB holders to participate fully in BSC-based DeFi applications, such as decentralised lending, borrowing, and synthetic asset creation.

Liquidity Provision: For liquidity pools on DEXs such as PancakeSwap, WBNB is a well-liked option. The total liquidity and effectiveness of the BNB Chain’s DeFi market are increased when users contribute WBNB to these pools in exchange for trading fees and rewards.

Collateral: Users can obtain liquidity or leverage assets by using WBNB as collateral on decentralized lending platforms (like Venus) to borrow other cryptocurrencies without having to sell BNB.

Trading: Compared to centralized exchanges, it offers more expanded trading pairings, direct trading via self-custody wallets, and makes trading BNB on decentralized exchanges with a large variety of other BEP-20 coins easier.

Yield Farming: Users of BSC-based DeFi devices can use WBNB in a variety of yield farming techniques. This entails supplying liquidity pools with WBNB and then staking LP tokens to obtain more cryptocurrency incentives, producing passive income.

Benefits of Wrapped BNB

Enhanced Utility: WBNB significantly broadens the scope of BNB’s application beyond petrol fees, enabling its value to be utilized in a variety of dApps such as blockchain games, NFT marketplaces, and DeFi protocols because of its BEP-20 programmability.

Increased Liquidity: Overall liquidity on the BNB Chain is increased via WBNB, which makes BNB usable in more protocols. It makes it easier to join DEX liquidity pools and offers a wide range of trading pairings, which makes trading more effective.

Interoperability: Because WBNB adheres to the BEP-20 standard, BNB and the numerous BEP-20-compliant dApps, wallets, and exchanges on the BNB Chain may communicate with ease.

Access to DeFi Opportunities: WBNB enables more financial participation in the ecosystem by opening up a range of DeFi activities for BNB holders, such as lending, borrowing, and supplying money for yield farming on decentralized platforms.

Risks and Considerations

Smart Contract Risk: Like other wrapped tokens, WBNB is dependent on the underlying smart contract’s security. Should the wrapping technique have flaws, the pegged value might be in jeopardy. But as WBNB is an actual coin endorsed by Binance, it usually passes stringent security checks.

Centralization Concerns (for some wrapped tokens): Although WBNB is supported by BNB, a centralized custodian may be required for the wrapping of some wrapped tokens. In contrast to cryptocurrencies’ decentralized nature, this might create a point of confidence. The mechanism of WBNB is mostly controlled by smart contracts.

Transaction Fees: There are gas expenses associated with wrapping and unwrapping BNB on the network, however BSC typically has cheaper rates than some other blockchains.

Storage and Trading of WBNB

Storage: WBNB may be kept in hardware wallets like Ledger and Trezor, which provide total control over your private keys, or non-custodial wallets like KuCoin Wallet, MetaMask, and Trust Wallet. If you want easy access to trading features, you can also hold it on a centralized exchange, however this means your money is kept safe by the exchange.

Buying WBNB: You can purchase Wrapped BNB (WBNB) using other centralized exchanges (CEXs), cryptocurrency wallets, or decentralized exchanges (DEXs), even if KuCoin does not presently support doing so. When purchasing, you can either pay with fiat money or convert another cryptocurrency, such as USDT, into WBNB.

Automated Trading: Users can create automatic trading bots for WBNB on platforms such as Cryptohopper, allowing for trading around-the-clock using technical indicators and personalized parameters.

Alternative Ways to Buy: P2P exchanges, bitcoin gift cards, and ATMs (if supported) are further methods.

Because the cryptocurrency market is so volatile, you must always do your own research (DYOR) and evaluate your risk tolerance before trading. The data is informational, not financial advice.

Key Differences Between BNB and WBNB