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As the question in the title: is the pegged token and wrapped token the same thing? From my understanding - it is? Both are tied to a particular cryptocurrency in order to maintain its value across blockchains. Or maybe its the same thing?

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I would say the terms are somewhat subjective in a colloquial sense because not everyone will be so precise. Here's an attempt at a descent description of each.

"Pegged": "Peg" is a transitive verb. An asset isn't merely "pegged". It must be pegged "to something." Pegging the price is the effect of some inherent design property that holds the peg. There are many ways to accomplish a peg. Two examples:

  • a credible minting and redemption process based on exchanging the collateral asset (to peg to) for the asset to be pegged at a 1:1 ratio.
  • an automated algorithmic process that attempts to maintain the peg while keeping the process (or contract) liquid.

"Wrapped": This is a method of achieving a peg and convertibility, among other things. It usually works by locking a collateral asset in a contract and issuing a new asset in equal amounts - the reverse on redemption.

For example, WETH can lock ETH in a contract and issue ERC20 tokens that are worth, or equivalent to, 1 ETH because the contract stands as a credible redemption window. This technique can help tokens migrate between chains without increasing the total supply. The intricacies of cross-chain migrations are beyond the scope of the question. Suffice it to say that issuing new tokens on the target chain usually involves locking assets on the source chain. The peg relies on a clear path back to redeeming the new tokens for the original collateral.

In summary, "wrapped" is one way among many to achieve a "peg".

Hope it helps.

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  • Thank you, this make somewhat more sense now, however I will need to read this answer few more times to fully understand this in the layman's terms :D
    – Robert Jamborski
    May 21, 2021 at 10:06
  • In case it helps, some countries "peg" their currency to the US Dollar. For example, Cuba has a "Cuban Convertable Peso" that the banks trade for US dollars. Tourists are required to use them. They cost $1 and they can be redeemed for $1 before one goes home. The method of the "peg" is a support system in the laws of the country.
    – Rob Hitchens
    May 21, 2021 at 18:43
  • That arrangement is a lot like a "wrapped" US Dollar.
    – Rob Hitchens
    May 21, 2021 at 18:44
  • Other methods of targeting 1:1 relationship with another currency or commodity are possible. For example, it can be a sophisticated trading algo that aims for low-risk equivalence (rather than growth). There could be a basket of stocks, crypto, orange juice, whatever and constant shuffling such that the target of 1:1 is supposed to be achieved.
    – Rob Hitchens
    May 21, 2021 at 18:46
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    Great answer. I just want to add that the utility of each is also distinct. Both are designed to maintain a 1:1 ratio between tokens. Wrapped tokens are used to either make a canonical chain's token conform to a certain token standard such as converting ETH to the ERC-20 compliant WETH or using BTC on Ethereum as WBTC. Pegged tokens are units of accounting used to maintain liquidity in use-cases like cross-chain bridges or perpetual trading, where for every 1 token, 1 pToken is minted.
    – jon.bray.eth
    Nov 8 at 1:45
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This is what I understand.

Wrapped token: represents a token non-native to the blockchain it is presently on.

Pegged token: is not a thing. A wrapped token would be 'pegged to' a non wrapped token to preserve the value of the wrapped token.

To further elaborate:

Your question is linked to moving tokens from one blockchain to another.

When 1 ETH is moved from ethereum blockchain to say matic chain, it is 'locked' on the ethereum chain, and a new token in minted on the matic chain, lets call this wETH(read: wrapped ETH). This ensures total circulation of ETH does not change.

wETH is 'pegged to' ETH. This just means that the value of 'wETH' is the same as ETH at any given time. Once moved back, the wETH on the Matic chain is 'burned'(read : no longer usable ever) and the ETH on the Ethereum chain is unlocked.

Thus, tokens can move from one chain to another without any loss in value.

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