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?
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.
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.