Wrapping trust for interoperability. A study of wrapped tokens
This addresses the problem of blockchain interoperability for developers and users, but it is an incremental study of existing wrapped token technologies.
The paper examines wrapped tokens as an early approach to blockchain interoperability, analyzing their issuance technologies, advantages, and limitations, including how they reintroduce trust and single points of failure similar to oracles.
As known, blockchains are traditionally blind to the real world. This implies the reliance on third parties called oracles when extrinsic data is needed for smart contracts. However, reintroducing trust and single point of failure, oracles implementation is still controversial and debated. The blindness to the real world makes blockchains also unable to communicate with each other preventing any form of interoperability. An early approach to the interoperability issue is constituted by wrapped tokens, representing blockchain native tokens issued on a non-native blockchain. Similar to how oracles reintroduce trust, and single point of failure, the issuance of wrapped tokens involves third parties whose characteristics need to be considered when evaluating the advantages of crossing-chains. This paper provides an overview of the wrapped tokens and the main technologies implemented in their issuance. Advantages, as well as limitations, are also listed and discussed.