Bender Labs launched Wrap Protocol on April 26; it is a kind of bridge between the blockchains of Ethereum (ETH) and Tezos (XTZ).
With this bridge it is possible to transfer ERC-20 and ERC-271, the most popular token standards on Ethereum, to the Tezos ecosystem.
This is possible by pinning these types of tokens on Ethereum in special contracts. This allows a version of the token to be created that is compatible with Tezos. This process is also called “wrapping” and the token retains the value of its original version.
A well-known example of this is wrapped bitcoin (WBTC), an ethereum-compatible version of bitcoin (BTC). With this one can, for example, secure bitcoin in decentralized finance (DeFi) products on the Ethereum network.
Popular ERC-20 tokens are therefore DeFi tokens such as uniswap (UNI), chainlink (LINK), tether (USDT) and maker (MKR). Through the new protocol, these tokens can be used in Tezos’ DeFi ecosystem. ERC-271 tokens are so-called non-fungible tokens (NFTs), which means that this new emerging market is now also arriving on Tezos.
One of the reasons for this new protocol may be the currently high transaction costs on Ethereum, which are a stumbling block for the network. In addition, Tezos already uses a proof-of-stake (PoS) protocol, while it may still take a while before Ethereum has completed the transition to PoS.