The idea behind wrapped tokens in the crypto space is to create solution for interoperability problem in blockchain technology, bitcoin is hosted on its main blockchain network which means for Bitcoin to be recognized in another blockchain I.e Ethereum blockchain it has to be wrapped to an ERC-20 token based on ethereum protocol. Which is from BTC to WBTC ERC-20 token.
To seamlessly move tokens from one blockchain to another it needs to be wrapped to the suitable blockchain you are moving your token to, this idea device by blockchain developers made it easier for users to easily swap their token across different chain some popular networks supporting wrapped token are the Ethereum blockchain ERC-20 and Tron blockchain TRC-20
Wrapped tokens are native tokens pegged 1:1 to the value of the main token. BTC exist as a wrapped token on both ERC-20 and TRC-20 which makes it tradeable on both chain so long it's wrapped.
**How do wrapped token work?
There are two processes minting and burning the latter has to do with how wrapped tokens are created while burning involves how it is destroyed.
In other to mint a wrapped token let's say a user wants to an ERC-20 WBTC such user needs to hold an equivalent value of BTC he wants to wrap and send it to a custodial wallet user who stores BTC in a digital vault where the BTC is locked and an equivalent amount of WBTC will be minted and sent to such user this process is done using a digital smart contract. To burn the WBTC the process is done in a reverse pattern WBTC is sent which is burn and converted to an equivalent BTC of the amount sent.
For every 1 WBTC that has been minted, 1 BTC is being held back, in equivalence to the value of the wrapped token.
Blockchain is all about increasing scalability with wrapped token interoperability between decentralized systems has been enhanced for traders to conveniently manage their assets across different blockchain networks.