Key Takeaways

• Crypto Twitter has been sharing jokes about wETH being exploited or losing its peg.
• At least one media publication—Bloomberg—took the jokes at face value.
• Wrapped Ethereum does not have a sole custodian and does not pose a systemic threat to the Ethereum ecosystem.

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Over the weekend, fears circulated in the crypto community stemming from claims that Wrapped Ethereum tokens could be at risk of losing their 1:1 value against ETH. However, the claims are no more than elaborate jokes about recent contagion fears.

Wrapped Ethereum Jokes

Crypto Twitter has been indulging in jokes about the state of Wrapped Ethereum for the last 24 hours, but not everyone is in on it.

Many prominent crypto community figures, including Hsaka, banteg, and CL, recently shared increasingly brazen claims about the Ethereum network’s Wrapped Ethereum token (wETH) somehow depegging or being exploited.

“wETH hack went unnoticed since 2019,” stated pseudonymous Yearn Finance lead developer banteg, “after investigating more than 90 million deposit and withdrawal events, I’ve found a supply discrepancy between the total supply wETH contract reports and the actual outstanding wETH.” He then posted: “It appears the contract holds 1 wei more than it owes. How is it possible?”

wETH is a token that aims to stay at 1:1 parity with ETH; it is used in many smart contracts and on non-Ethereum blockchains. As the token is widely used across various crypto ecosystems, it would be easy to believe that a failure would have catastrophic consequences for the crypto space.

At least one newspaper organization took the claims at face value. Bloomberg ran an article early this morning stating that crypto analysts were having “concerns” about Wrapped Ethereum. The article was quickly amended when crypto community members started sharing it around Twitter mockingly.

Understanding wETH

Wrapped Ethereum is not issued by a centralized party, like Circle or Tether, but by various smart contracts. Ethereum users can “wrap” their ETH manually by placing it into the smart contract, receiving the same amount of wETH in return. They can then swap back their wETH for ETH any time they want. Many different protocols and platforms are offering to wrap ETH into wETH, including OpenSea.

The advantage of wETH is that it’s an ERC-20 token, just like other coins in the Ethereum ecosystem—for example, UNI, MKR, or LDO. Therefore, it has the same characteristics as these tokens and allows smart contracts to process ETH the same way they’d process any other ERC-20 token without needing any technical modifications.

Because wETH does not have a single custodian (again, unlike USDC or USDT), the token itself does not pose any systemic risk to the crypto space. However, it’s theoretically possible for some wETH tokens to lose value if their specific custodian loses the ETH backing the wrapped token. 

The crypto space has been rife with rumors of systemic risks since leading crypto exchange FTX collapsed spectacularly in a matter of days at the beginning of November. The event caused a chain reaction of insolvencies in various entities connected to FTX in some manner or other, including BlockFi, Voyager, Genesis, and Digital Currency Group. But the concerns about wETH losing its peg or being exploited can be put down as yet another expression of the crypto community’s typical gallows humor. 

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.

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