Wrapped Ether (WETH) refers to the ERC-20 compatible version of ether (wrapping ether with other ERC standards is also possible). WETH can be created by sending ether to a smart contract where the ether is placed on hold, in turn receiving the WETH ERC-20 token at a 1:1 ratio. This WETH can afterward be sent back into the same smart contract to be "unwrapped" or redeemed back for the original ether at a 1:1 ratio.

Ether, being the native currency on the Ethereum blockchain, was created before the ERC-20 standard and others standards were implemented; hence ether itself is not ERC-20 compatible and cannot be exchanged directly for other ERC-20 tokens in a decentralized manner without the mediation of a trusted third party of the addition of complex technical implementations. Instead of implementing two interfaces (one for ether and another for ERC-20 tokens) within the same smart contract leading to unnecessary complexities, developers decided to "wrap" ether to upgrade it to the ERC-20 standard in order to conveniently handle WETH and other ERC-20's within the same contract. Wrapping ether allows the direct, seamless exchange between ether and ERC-20 tokens without the need for a trusted third-party and without incurring in unnecessary risks such as unexpected errors during transactions resulting from complex implementations.