Autor Cointelegraph By Marcel Deer

What is wrapped Ethereum (wETH) and how does it work?

Traders who use the Ethereum network are familiar with the ERC-20 technical standard and have most likely traded and invested in tokens that utilize it. After all, its practicality, transparency and flexibility have made it the industry norm for Ethereum-based projects.As such, many decentralized applications (DApps), crypto wallets and exchanges natively support ERC-20 tokens. However, there’s one problem: Ether (ETH) and ERC-20 do not exactly follow the same rules, as Ether was created way before ERC-20 was implemented as a technical standard.So, why does wrapped ETH matter? Briefly put, ERC-20 tokens can only be traded with other ERC-20 tokens, not Ether. In order to bridge this gap and enable the exchange of Ether for ERC-20 tokens (and vice versa), the Ethereum network introduced wrapped Ethereum (wETH). That said, wETH is the ERC-20 tradable version of ETH.What is wrapped Ether (wETH)?As mentioned, wETH is the wrapped version of Ether, and it’s named as such because wETH is essentially Ether “wrapped” with ERC-20 token standards. Wrapped coins and tokens virtually have the same value as their underlying assets. So, is wrapped Ethereum safe to trade and invest in? The answer is yes, as far as Ethereum is concerned. wETH is pegged to the price of ETH at a 1:1 ratio, so they’re basically the same. The only difference between wrapped tokens and their underlying assets is their use cases, especially for older coins like Bitcoin (BTC) and Ether.Wrapped tokens are like stablecoins, to a certain degree. Come to think of it, stablecoins can also be considered “wrapped USD,” since they have the same value as their underlying asset, the United States dollar. They can also be redeemed for fiat currencies at any time.Bitcoin also has a wrapped version called Wrapped Bitcoin, which has the same value as Bitcoin. The same goes for other blockchains like Fantom and Avalanche.Wrapped Ethereum tokens can be unwrapped after they’ve been wrapped, and the process is simple: Users just have to send their wETH tokens to a smart contract on the Ethereum network, which will then return an equal amount of ETH. Wrapped tokens solve interoperability issues that most blockchains have and allow for the easy exchange of one token for another. For example, users cannot normally utilize Ether on the Bitcoin blockchain or Avalanche on the Ethereum blockchain. Through wrapping, underlying coins are tokenized and wrapped with a certain blockchain’s token standards, thus allowing for their use on that network.How does wrapped Ethereum (wETH) work?Unlike Ether, wETH cannot be used to pay gas fees on the network. Because it is ERC-20 compatible, however,  it can be used to provide more investment and staking opportunities on DApps. wETH can also be used on platforms like OpenSea to buy and sell through auctions.Wrapping Ether tokens involves sending ETH to a smart contract. The smart contract will generate wETH in return. Meanwhile, ETH is locked to ensure that the wETH is backed by a reserve. Whenever wETH is exchanged back into ETH, the exchanged wETH is burned or removed from circulation. This is done to ensure that wETH remains pegged to the value of ETH at all times. wETH can also be acquired by swapping other tokens for it on a crypto exchange, such as SushiSwap or Uniswap.So, what is the point of wrapped Ethereum? According to WETH.io, the ultimate goal is to update Ethereum’s codebase and make it ERC-20 compliant in itself, eventually eliminating the need to wrap Ether for the purpose of interoperability. But, until then, wETH continues to remain useful in providing liquidity to liquidity pools, as well as for crypto lending and NFT trading, among others. In short, it’s not really a matter of ETH vs. wETH since wrapping Ethereum is more of a workaround than a permanent solution. With the number of upgrades slated to happen on the Ethereum network over the years, Ethereum seems to be moving closer toward better interoperability by the day.How to wrap Ether (ETH)?There are several ways to wrap Ether. As mentioned, one of the most common ways to do so is by sending ETH to a smart contract. Another method is swapping wETH for another token via a crypto exchange.Let’s look at three ways to generate wETH in the sections below:Using the wETH smart contract on OpenSeaIn this example, we’ll be using the OpenSea platform to convert ETH to wETH using the wETH smart contract.First, click on “Wallet,” located at the top-right corner of OpenSea. Then, click on the three dots next to Ethereum and select “Wrap.”Next, enter the value for the amount of ETH to be converted to wETH. Then, click “Wrap ETH.” This will call the wETH smart contract to convert ETH into wETH.A MetaMask pop-up will appear, prompting the user to sign the transaction. A confirmation message will then appear once the wrap is complete.The converted wETH will show up in the wallet portion of the user’s OpenSea account. The wETH will bear a pink Ethereum diamond as its logo, distinguishing it from ETH.Generating wETH via UniswapWhen using Uniswap, a user first has to connect their wallet and ensure the Ethereum network is selected.Then, click “Select Token,” located at the bottom field, and select wETH from the list of options. Now, input the amount of ETH to be converted to wETH and click “Wrap.”The transaction will then need to be confirmed from the user’s crypto wallet. Gas fees in ETH will also need to be paid at this stage. Once all the details are in order and the transaction has been confirmed from the user’s end, all that’s left to do is to wait for the transaction to be confirmed in the blockchain.Generating wETH with MetaMaskUpon opening the MetaMask wallet, begin by ensuring that the selected network is “Ethereum Mainnet.” Then, click “Swap.”Then, select wETH from the “Swap to” field.Next, input the amount of ETH to be swapped. Then, click “Review Swap.”A window displaying a quote of the conversion rate will appear. Since it involves the conversion of ETH to wETH, the rate should be 1:1. To finalize the transaction, click “Swap.”How to unwrap Ether (ETH)?Unwrapping Ether can also be done manually, such as by interacting with a smart contract. For instance, ETH can also be unwrapped in the same way that it can be wrapped via the wETH smart contract on OpenSea. The only difference is that instead of clicking “Wrap ETH,” the user has to click “Unwrap wETH.”The same goes for swapping wETH back to ETH, which can be done by using Uniswap or MetaMask. The process for unwrapping is essentially the same as the process outlined above for wrapping ETH on both platforms. The only difference is that the values should be changed (from wETH to ETH).What are the risks of using wrapped tokens?Ethereum co-creator Vitalik Buterin himself pinpointed one of the main disadvantages of wrapped assets. According to Buterin, the main problem with many of these wrapped assets is their sensitivity to centralization. Currently, wrapping assets are not Turing-complete and cannot be automated via the Ethereum blockchain. As discussed, wrapping is usually only carried out using central programs, thus the concern for possible manipulation and abuse.Issued wrapped tokens depend on the third-party platforms that issue them, inevitably subjecting decisions pertaining to wrapped assets to central entities. Buterin voiced his concerns about the possibility of such a mechanism undermining the core principles of decentralization and transparency that the blockchain industry stands for.Future of wrapped tokensCurrently, wrapped tokens make it possible for blockchains to interact with one another. This allows for a much more decentralized ecosystem, where tokens can be easily traded or exchanged between different platforms.Better interoperability solutions are on the horizon, such as updating blockchains’ codebases to be compatible with each other or using bridge chains. For Ethereum, at least, the plan is to eventually phase out the use of wrapped tokens like wETH alongside network developments.This does not mean that wrapped tokens are going away anytime soon. They will continue to play an important role, providing valuable service to those who need it. For one, wrapped tokens can serve as a stabilizing force between different blockchains, as they help maintain consistent prices between them.They can also help facilitate cross-chain atomic swaps, which are becoming increasingly popular. In the long run, however, wrapped tokens will likely become less and less necessary as blockchains become more interoperable.Purchase a licence for this article. Powered by SharpShark

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APR vs. APY: What’s the difference?

The compound interest can be set to daily, weekly, monthly, annually or continually.  Calculating the APY is a bit more complex than the APR since interest is added to the principal, and then the interest on that total is calculated, considering the number of periods the amount is adjusted. To calculate the APY, you can use the following formula: For example, an investment of 1,000 coins is made at a compound interest of 10% and daily compounding. The following calculation indicates that a total of 1,105 will be collected after one year. In the following year, it should be 1,221. The earnings increase the longer it is held and at higher interest rates. Every time the computation is updated, the interest should be added to the sum comprising the initial investment and the accrued interest profits. But what does a 10% APY mean in crypto? Most cryptocurrency projects offer only 1% APY, but some offer 7% on flexible accounts, such as Phemex for Tether (USDT). In the case of fixed saving accounts, they can go as high as 10%. There are also DeFi platforms like PancakeSwap (CAKE) and SushiSwap (SUSHI), which are said to offer very high APYs of over 100% to investors.

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Golden cross vs. death cross explained

Compared to the golden cross, a death cross involves a downside MA crossover. This marks a definitive market downturn and typically occurs when the short-term MA trends down, crossing the long-term MA.  Simply put, it’s the exact opposite of the golden cross. A death cross is usually read as a bearish signal. The 50-day MA typically crosses below the 200-day MA, signaling a downtrend. Three phases mark a death cross. The first occurs during an uptrend when the short-term MA is still above the long-term MA. The second phase is characterized by a reversal, during which the short-term MA crosses below the long-term MA. This is followed by the start of a downtrend as the short-term MA continues to move downward, staying below the long-term MA.  Like golden crosses, no two death crosses are alike, but specific indicators signal their occurrence. Here’s a look at each stage of a death cross in detail. The first stage of a death cross is typically marked by an asset being in an uptrend. This is followed by a weakening 50-day MA, the first sign that bearishness may be on the horizon. As prices begin to fall after they peak, the short-term MA diverges from the long-term MA. The second stage sees the 50-day MA crossing below the 200-day MA. This is a key point, as it signals that the asset may be entering a downtrend. The divergence between the two MAs becomes more pronounced as prices continue to fall. The death cross begins to form much more clearly during this stage. The final stage is marked by the 50-day MA continuing to trend downward, staying below the 200-day MA. This signals that a downtrend is indeed underway. The death cross typically leads to further selling pressure as traders liquidate their positions in anticipation of further price declines. If, however, the downtrend is not sustained, it could mean a short-lived momentum and prices rebounding quickly, in which case, the death cross is considered to be a false signal.

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How does tokenization help transform illiquid real estate ownership into a liquid one?

A few years back, the concept of owning and trading fragments of physical real estate might have seemed too far-fetched for many. But with the advent of blockchain technology, real estate tokenization is providing new opportunities for fractional ownership and investment.Blockchain technology’s long-overdue debut in real estate has made real-world asset tokenization a heavily-discussed topic in the industry. After all, tokenization ticks all those boxes that are often required to ruffle many a feather in a traditional industry — it’s digital, global, complex and future-oriented.But how exactly does real estate tokenization work, and how can it help transform illiquid real estate ownership into a liquid one? Let’s take a look.What does tokenization mean?Tokenization is the process of taking traditional assets (like real estate) and dividing them into digital tokens that can be traded on a blockchain. This makes it easier for people to invest in and trade such assets and helps create a more liquid market.In essence, tokenization is the process of converting asset ownership rights into digital tokens on a blockchain and can be used to tokenize several things, including:Tangible assets like precious metals, real estate, art and more;Intangible assets such as intellectual property rights; andRegulated financial instruments like bonds and equities.In the context of real estate, tokenization refers to the fractionalization (dividing the property into smaller parts) of property through tokens stored on a blockchain. This way, investors can directly own a piece of a token’s underlying real-world asset without having to purchase or manage the entire property.Tokenization can help make investing in real estate more accessible and liquid. Rather than purchasing an entire property, investors can now buy tokens representing a portion of the property. This makes it easier for people to invest and also helps create a more liquid market.The benefits of tokenizationTokenization has the potential to revolutionize the way we invest and trade assets by making it easier and more accessible for everyone. For example, tokenization can help with:LiquidityThe conversion of illiquid real estate assets into “tokens” implies that a direct investment in a property is treated as an indirect one. This allows issuers to secure higher liquidity, as the number of buyers is not limited to those who can afford the entire asset. In addition, tokenization also allows for fractional ownership, opening up investment opportunities to a larger pool of potential investors.TransparencyThe use of blockchain technology brings a new level of transparency to the real estate industry. Since data is stored on a decentralized ledger, all transactions are visible to everyone on the network. Completed transactions can no longer be changed, manipulated or canceled, in turn creating a more secure and trustworthy system. This increased transparency helps to build trust and confidence in the market, and reduce fraudulent activity.AutomationThe use of smart contracts can help to automate several processes involved in real estate transactions, such as title transfers, document verification, dividend payments and compliance. This can help make the process more efficient and streamlined, saving time and money for all parties involved.AccessibilityTokenization removes current limitations on the fractionalization of real-world assets, making it possible for a wider investor base to participate. Barriers to entry are removed since assets once available only to a select and privileged few can now be accessed by a larger number of people. This increased accessibility helps to democratize the market and level the playing field.Reducing geographic constraintsThe global nature of public blockchains facilitates the tokenization of assets, making them available to investors anywhere in the world. This helps break down geographic boundaries and connect global markets. For example, a real estate property in New York can now be tokenized and made available to investors in Japan, and vice versa, provided the participating blockchain complies with relevant Know Your Client and Anti-Money Laundering laws.How do you tokenize real estate assets?There are three steps involved in tokenizing real estate assets:Step 1: Deal structuringThis step involves deciding on the type of asset to be tokenized. Typically, property owners either:Form a subsidiary created by a parent company (to isolate financial risk) called a special purpose vehicle, or;Become part of a real estate fund, or funds that already exist and are focused on investing in real estate securitiesDuring this step, the rights of shareholders to dividends, partial governance and equity shares are also determined.Step 2: Choosing a platformThe next step is choosing the tokenization platform for creating the tokens. Some examples of popular platforms for tokenizing real estate assets include RealT, Harbor and Slice. The property owners’ chosen platform then uses blockchain technology to create smart contracts, which are then used to manage and automate the sale, transfer and dividend payments of the tokens. Tokens can run on different types of blockchains, such as:Public blockchains: These networks are decentralized and open-source, meaning anyone can join and participate. The best-known examples of public blockchains include Ethereum and Bitcoin.Private blockchains: These networks are centralized and permissioned, meaning only those with an invitation from the network administrator can join. Private blockchains are often used by businesses and organizations for internal record-keeping and efficient management.Hybrid blockchains: These networks are a combination of both public and private blockchains, giving users the benefits of both worlds.Step 3: Token issuance and distributionTokens are created, issued and distributed during a security token offering (STO). Much like stocks issued on the stock market during an initial public offering (IPO), security tokens are offered to investors in exchange for funding. Once the STO is complete, these security tokens are listed on a digital asset exchange, where they can be bought and sold by investors.How can the real estate market benefit from tokenization?Tokenization provides new liquidity to the real estate market by making it easier for people to trade and invest in properties. Through tokenization, investors can now buy and sell fractional ownership in a property, which was not possible before. This has created a more liquid market for real estate and is helping transform how people invest in and own property.The global real estate market is currently valued at $280 trillion. However, despite being one of the largest markets worldwide, traditional real estate remains largely illiquid and nontransparent. Critics chalk it up to many factors, including high investment costs, long investment horizons, expensive intermediaries and inefficient settlement cycles.Tokenization is helping to solve these problems by bridging the gaps between traditional real estate and blockchain technology. According to a recent study by Moore Global, if 0.5% of the total global property market were to be tokenized within the next five years, the real estate market could grow exponentially to $1.4 trillion. Simply put, even a small portion of traditional real estate could significantly improve market liquidity through tokenization.How to gain liquidity without selling your real estate assets?Traditional principles of real estate dictate that gaining liquidity can only mean one thing: selling one’s assets. However, with tokenization, this is no longer the case. Now, property owners can unlock their property’s liquidity without selling it.Blockchain technology opens up a slew of opportunities by allowing assets to be broken down into smaller pieces, representing ownership, fostering the democratization of investment in formerly illiquid assets and enhancing market fairness. This is true not only for real estate assets, but also for company shares, valuable art collections and more.For example, let’s say a property owner’s $1 million rental property is currently generating $10,000 per month in rental income. If they were to tokenize the property, they could issue 10,000 tokens at $100 each. These tokens could then be sold on a digital asset exchange to investors, who would then be able to trade the tokens and receive rental income from the property.The property owner would still retain ownership of the property and continue to receive rental income from it. However, they would also have the needed liquidity without selling their assets.The potential risks associated with tokenization of real estate investingWhen it comes to the tokenization of real estate, there are a few key risks that investors should be aware of:Regulation: Real estate tokenization is still a relatively new phenomenon, currently unregulated in most jurisdictions. This means there is a risk that laws and regulations could change, adversely affecting the tokenized real estate market.Volatility: The prices of digital assets can be highly volatile, which means that investors could lose a substantial amount of money if they invest in a property that decreases in value.Fraud: As with any investment, there is always a risk of fraud. When investing in tokenized real estate, thorough research and due diligence are important to ensure the project is legitimate. Despite these risks, the potential rewards of investing in tokenized real estate outweigh the risks for many investors. The key is to be aware of the risks and to conduct extensive research before investing.Purchase a licence for this article. Powered by SharpShark.

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How does high-frequency trading work on decentralized exchanges?

Following the decentralized finance (DeFi) boom of 2020, decentralized exchanges (DEXs) solidified their place in the ecosystems of both cryptocurrency and finance. Since DEXs are not as heavily regulated as centralized exchanges, users can list any token they want. With DEXs, high-frequency traders can make trades on coins before they hit major exchanges. Plus, decentralized exchanges are noncustodial, which implies that creators cannot pull an exit fraud — in theory.As such, high-frequency trading firms that used to broker unique trading transactions with cryptocurrency exchange operators have turned to decentralized exchanges to conduct business.What is high-frequency trading in crypto?High-frequency trading (HFT) is a trading method that uses complex algorithms to analyze large amounts of data and make quick trades. As such, HFT can analyze multiple markets and execute a large volume of orders in a matter of seconds. In the realm of trading, fast execution is often the key to making a profit.HFT eliminates small bid-ask spreads by making large volumes of trades rapidly. It also allows market participants to take advantage of price changes before they are fully reflected in the order book. As a result, HFT can generate profits even in volatile or illiquid markets.HFT first emerged in traditional financial markets but has since made its way into the cryptocurrency space owing to infrastructural improvements in crypto exchanges. In the world of cryptocurrency, HFT can be used to trade on DEXs. It is already being used by several high-frequency trading houses such as Jump Trading, DRW, DV Trading and Hehmeyer, the Financial Times reported.Decentralized exchanges are becoming increasingly popular. They offer many advantages over traditional centralized exchanges (CEXs), such as improved security and privacy. As such, the emergence of HFT strategies in crypto is a natural development.HFTs’ popularity has also resulted in some crypto trading-focused hedge funds employing algorithmic trading to produce large returns, prompting critics to condemn HFTs for giving larger organizations an edge in crypto trading.In any case, HFT appears to be here to stay in the world of cryptocurrency trading. With the right infrastructure in place, HFT can be used to generate profits by taking advantage of favorable market conditions in a volatile market.How does high-frequency trading work on decentralized exchanges?The basic principle behind HFT is simple: buy low, sell high. To do this, HFT algorithms analyze large amounts of data to identify patterns and trends that can be exploited for profit. For example, an algorithm might identify a particular price trend and then execute a large number of buy or sell orders in quick succession to take advantage of it.The United States Securities and Exchange Commission does not use a specific definition of high-frequency trading. However, it lists five main aspects of HFT:Using high-speed and complex programs to generate and execute ordersReducing potential delays and latencies in the data flow by using colocation services offered by exchanges and other servicesUsing short time frames to open and close positionsSubmitting multiple orders and then canceling them shortly after submissionReducing exposure to overnight risk by holding positions for very short periods In a nutshell, HFT uses sophisticated algorithms to continually analyze all cryptocurrencies across multiple exchanges at very high speeds. The speed at which HFT algorithms operate gives them a significant advantage over human traders. They can also trade on multiple exchanges simultaneously and across different asset classes, making them very versatile.HFT algorithms are built to detect trading triggers and trends not easily observable to the naked eye, especially at speeds required to open a large number of positions simultaneously. Ultimately, the goal with HFT is to be the first in line when new trends are identified by the algorithm.After a large investor opens a long or short position on a cryptocurrency, for instance, the price usually moves. HFT algorithms exploit these subsequent price movements by trading in the opposite direction, quickly booking a profit.That said, large cryptocurrency sales are typically harmful to the market because they usually drag prices down. However, when the cryptocurrency rebounds to normal, the algorithms “buy the dip” and exit the positions, allowing the HFT firm or trader to profit from the price movement.HFT in cryptocurrency is made possible because most digital assets are traded on decentralized exchanges. These exchanges do not have the same centralized infrastructure as traditional exchanges, and as a result, they can offer much faster trading speeds. This is ideal for HFT, as it requires split-second decision-making and execution. In general, high-frequency traders execute numerous trades each second to accumulate modest profits over time and generate a large profit.What are the top HFT strategies?Although there are too many types of HFT strategies to list, some of them have been around for a while and aren’t new to experienced investors. The idea of HFT is frequently connected to conventional trading techniques that take advantage of cutting-edge IT capabilities. However, the term HFT can also refer to more fundamental ways of taking advantage of opportunities in the market.Related: Crypto trading basics: A beginner’s guide to cryptocurrency order typesBriefly put, HFT may be considered a strategy in itself. As a result, instead of focusing on HFT as a whole, it’s important to analyze particular trading techniques that employ HFT technologies.Crypto arbitrage Crypto arbitrage is the process of making a profit by taking advantage of price differences for the same cryptocurrency on different exchanges. For example, if one Bitcoin (BTC) costs $30,050 on Exchange A and $30,100 on Exchange B, one could buy it on the first exchange and then immediately sell it on the second exchange for a quick profit.Crypto traders who profit from these market inconsistencies are called arbitrageurs. Using efficient HFT algorithms, they can take advantage of discrepancies before anyone else. In doing so, they help stabilize markets by balancing prices.HFT is highly beneficial to arbitrageurs because the window of opportunity for conducting arbitrage strategies is usually very small (less than a second). To rapidly seize short-term market opportunities, HFTs rely on robust computer systems that can scan the markets quickly. In addition, HFT platforms not only discover arbitrage opportunities but can also make trades up to hundreds of times faster than a human trader. Market makingAnother common HFT strategy is market making. This involves placing buy and sell orders for a security at the same time and profiting from the bid-ask spread—the difference between the price you’re willing to pay for an asset (ask price) and the price at which you’re willing to sell it (bid price).Large companies called market makers provide liquidity and good order in a market and are well-known in conventional trading. Market makers can also be linked to a cryptocurrency exchange to guarantee market quality. On the other hand, market makers that do not have any agreements with exchange platforms also exist—their aim is to use their algorithms and profit from the spread.Market makers are constantly buying and selling cryptocurrencies and setting their bid-ask spreads so that they make a small profit on each trade. They may, for example, buy Bitcoin at $37,100 (the ask price) from someone wanting to sell their Bitcoin holdings and offer to sell it at $37,102 (the bid price). The $2.00 difference between the bid and ask prices is called the spread, and it’s mainly how market makers earn money. And, while the difference between the ask and bid price might seem insignificant, day trading in volumes can result in a significant chunk of profit.The spread ensures that the market maker is compensated for the inherited risk that accompanies such trades. Market makers provide liquidity to the market and make it easier for buyers and sellers to trade at fair prices.Short-term opportunitiesHigh-frequency trading is not intended for swing traders and buy-and-holders. Instead, it’s employed by speculators wanting to wager on short-term price fluctuations. As such, high-frequency traders move so quickly that the price might not have time to adjust before they act again.For instance, when a whale dumps cryptocurrency, its price will typically drop for a short time before the market adjusts to meet the supply-demand balance. Most manual traders will lose out on this dip because it may only last for minutes (or even seconds), but high-frequency traders can capitalize on it. They have the time to let their algorithms work, knowing the market will eventually stabilize.Volume tradingAnother common HFT strategy is volume trading. This involves tracking the number of shares traded in a given period and then making trades accordingly. The logic behind this is that as the number of shares traded increases, so does the market’s liquidity, making it easier to buy or sell a large number of shares without moving the market too much.Related: On-chain volume vs. Trading volume: Differences explainedTo put it simply, volume trading is all about taking advantage of the market’s liquidity. High-frequency trading allows traders to execute a large number of transactions quickly and profit from even the smallest market fluctuations.Purchase a licence for this article. Powered by SharpShark.

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