Native ITEMs are a Collection’s objects that, via their Extensions, can perform complex behaviors specified optionally in the Extension logic. These extra capabilities are up to the developers writing the Extension logic.
Wrapped ITEMs, on the other hand, retain all the capabilities of the default ITEM standard, but lose any extra ones while wrapped. For example, once wrapped, A DAO or DFO governance token cannot interact with the DAO or DFO (until unwrapped), but can still be traded like any ITEM using a gas-efficient method like BatchTransfer.
To be clear: Wrapped items CANNOT have Extensions.