A wrapped token is a digital asset that represents the exact value of an original cryptocurrency from a different blockchain. It is created by locking up the original asset in a smart contract on the destination blockchain. The wrapped token can then be used on the destination blockchain, just like the original asset.

For example, Wrapped Bitcoin (wBTC) is a wrapped token that represents the value of Bitcoin (BTC). WBTC is pegged 1:1 to the price of Bitcoin (BTC), so that one WBTC equals one BTC. wBTC is created by locking up BTC in a smart contract on the Ethereum blockchain. Once the BTC is locked up, the wBTC is minted and can be used on the Ethereum blockchain.

Wrapped tokens are used to enable cross-chain compatibility. This means that assets can be transferred between different blockchains.

This is important for a number of reasons, such as:

To allow users to use their favorite assets on different blockchains.
To allow users to access DeFi applications on different blockchains.
To facilitate the trading of assets between different blockchains.