A wrapped token is a type of cryptocurrency token that represents another cryptocurrency or asset on a different blockchain. It involves pegging the value of the original asset to a token on a different blockchain to enable its use on that blockchain. This allows users to transact with assets that are not native to the blockchain they are using.

For example, if you have Bitcoin (BTC) but want to use it on the Ethereum blockchain, you can wrap it into a wrapped Bitcoin (wBTC) token. This process involves locking the original BTC in a custodial account and issuing an equivalent amount of wBTC on the Ethereum blockchain. This wBTC token can then be used in decentralized applications (DApps) and smart contracts on Ethereum.

Wrapped tokens have become popular because they help bridge liquidity across different blockchains and enable users to interact with various assets and decentralized finance (DeFi) applications in a seamless manner. They provide interoperability between different blockchain ecosystems and expand the utility and accessibility of digital assets.