Wrapped Zcash is Coming to Ethereum’s DeFi Ecosystem

Privacy-focused Zcash (ZEC) will be the first coin supported by Wrapped—a cross-chain bridge that allows for bringing various cryptos onto the Ethereum blockchain, Tokensoft and Anchorage jointly announced on Wednesday.

The bridge will enable Zcash holders to use their shielded ZEC on Ethereum, including on decentralized finance (DeFi) platforms such as Maker, Uniswap and Compound.

“By bringing new liquidity sources into DeFi, and enabling users to benefit from those qualities that make layer one protocols unique, Wrapped is a boon for both market participants and the broader ecosystem,” said Nathan McCauley, Anchorage co-founder and CEO.

What are wrapped tokens?

To move a coin onto a different blockchain—in this case, ZEC onto Ethereum—a special smart contract first locks up (stakes) the original coins in their native network, and then creates a “wrapped” copy of them on a new blockchain at 1:1 ratio.

These wrapped coins fully retain the original’s price and functionality. If a user wants to return their assets to the original blockchain, the smart contract will simply unlock them—and burn the corresponding amount of wrapped coins on Ethereum.

Per the announcement, WZEC is based on the ERC-1404 token standard developed by Tokensoft. It allows “for the free transfer of WZEC along with incorporation of applicable compliance requirements globally.”

Within the partnership, blockchain company Tokensoft will focus on the technical development of the new system while institutional digital asset platform Anchorage will provide custody for Wrapped Zcash’s (WZEC) underlying assets.

“We’re looking forward to enabling a more interoperable form of Zcash with WZEC," said Mason Borda, CEO of Tokensoft. "Users of WZEC will have the ability to use their Zcash in a variety of DeFi applications. Additionally, exchanges will now be able to hold Zcash while meeting their compliance requirements,” 

Apart from Zcash, wrapped versions of Handshake, Avalanche and Celo are also currently “in consideration,” the companies noted.