Litecoin is one of the most prominent cryptocurrencies in the market. However, the famed crypto coin’s protocol doesn’t allow the usage and support of general smart contracts. There is no easy way in DeFi to bypass this. Even so, there is still a solution for this, the WLTC or Wrapped Litecoin. In this article, we will go into more detail regarding this coin, why there is a need for it, and also the impact made by the cryptocurrency in the market following its debut.
What Is WLTC?
Wrapped Litecoin or WLTC is an ERC-20 token on Ethereum that is backed by one-to-one with Litecoin. It allows users to effectively engage in the various DeFi activities conducted by the network. This includes staking, yield farming, and trading, that too, without the need to sell their LTC. This integration also facilitates Litecoin to participate in various Ethereum-based applications and smart contracts.
This helps greatly improve the use cases and liquidity factors associated with the coin. Before Wrapped Litecoin, the main way to use Litecoin as a financial derivative was via Centralized exchanges. With the WLTC launch, the users were provided with increased flexibility. Not only that, it also offers swift transactions whose transaction fee is comparatively less.
Key Features & Benefits
As we discussed layer, the WLTC is completely backed by Litecoin in a 1:1 ratio. This helps ensure that the assets are well maintained and the users are offered different functionalities they can utilize on the network. Not only that, Wrapped Litecoin also has several other key features that greatly benefit the users. Here, we will look into a few of the important ones.
1. Cross-Chain Operability
The WLTC allows the Litecoin holders to partake and engage in various Ethereum-based dApps and other associated services. This helps to facilitate interoperability between the two blockchains.
2. Enhanced Liquidity
As WLTC is available on various Ethereum-based exchanges, it enhances the liquidity of the Litecoin holders to a great extent. Users can also trade their WLTC for other cryptocurrencies that are available in these exchanges.
3. Accessibility To DeFi Features
Wrapped Litecoin allows users to partake in various DeFi activities like staking, yielding, and even lending. As these functionalities are not available on the Litecoin blockchain and are on the Ethereum blockchain, the WLTC holders are introduced to new methods that can boost their portfolio.
4. Smart Contracts
WLTC can use Ethereum’s smart contracts to enable users to partake in various complex transactions and automated trading features that are not possible in traditional transaction methods of LTC.
5. Improved Security
The WLTC provides users with added security features by utilizing other platforms like Coinbase for cold storage and other associated features. This ensures that the assets are protected against various crypto and cyber attacks.
Potential Risks Associated With WLTC
Wrapped Litecoin, like any other wrapped token, has its own share of disadvantages associated with it. Here, we will look into some of these potential risks so that you know exactly what you’re getting into with the WLTC.
1. Counterparty Risk
If your asset is being managed by a third party, you might want to prepare for counterparty risk. This situation arises when the custodian somehow fails to uphold his end of obligation during a transaction, which will result in the holder losing access to their assets.
2. Centralization
In most cases, the wrapped tokens are issued and managed by a central authority. So, if the central authority somehow fails or stops functioning properly, it could significantly impact the market value of the WLTC.
3. Hacking
Wrapped coins rely on bridging technology to transfer assets between different blockchains. This bridge could be targeted by hackers, which will result in the loss of the underlying assets.
4. Technical Risks
Introducing and using smart contracts may result in bugs in the code. This could then be utilized by hackers to gain access to your assets.
5. Volatility
The WLTC is also treated as a cryptocurrency. So, like any other crypto coins out there, they are also susceptible to the high volatility associated with the crypto market.
Final Remarks
The introduction of Wrapped Litecoin has succeeded in boosting the functionality and utility of Litecoin to a great extent. Even though the WLTC offers various advantages like interoperability and enhanced liquidity, it also has its fair share of risks associated with it. As the DeFi continues to evolve, we will most likely see a lot of upgrades being added to WLTC to boost its utility across various blockchains. This will also help in triggering a price surge for the token in the future. As of now, we can only wait and see what the future entails for the variant of the famed coin.
