Wrapped tokens
A token from one chain 'wrapped' for use on another (WBTC, WETH).
Bitcoin doesn't exist natively on Ethereum, but you want to use BTC in DeFi (e.g. as collateral on Aave). Solution: WBTC. You deposit real BTC with a custodian (BitGo) and get WBTC on Ethereum at 1:1. Same with WETH = ETH 'wrapped' to the ERC-20 standard so it works with DEXes. Risk: you trust the custodian to hold the actual reserves. In 2024 there was controversy over WBTC's custody handover.
In plain words
Bitcoin doesn't exist natively on Ethereum, but you want to use it in DeFi. Solution: you give real BTC to a custodian (e.g. BitGo) and receive WBTC on Ethereum 1:1. You can trade it and use it as collateral. Trust in the custodian is the weak point. If they vanish, your WBTC becomes worthless.
Example
WBTC: 130k+ BTC locked at BitGo (~$13B) circulates on Ethereum in DeFi (Aave, MakerDAO).
Also known as: wbtc, weth