Unravelling the Diversity of Crypto Tokens: A Comprehensive Guide
Compared to the early days of crypto, there is now a vast ecosystem of digital assets with many use cases and functionalities.
One crucial component of this ecosystem is crypto tokens — AKA the building blocks of blockchain-based projects and offering a wide range of utility beyond traditional cryptocurrencies.
So, we’re going to explore the multifaceted realm of crypto tokens and the pivotal role they play in shaping the contemporary landscape of digital finance and blockchain technology.
Utility tokens are the most common type of crypto token. They serve a specific purpose within a blockchain ecosystem, often granting users access to a product or service. Examples include:
- Binance Coin (BNB): Used for transaction fees on the Binance exchange and within the Binance ecosystem.
- Ethereum (ETH): Required to pay for computational services on the Ethereum network.
- Cardano (ADA): The native token of the Cardano blockchain. Can be used to create smart contracts and decentralised apps (dApps).
Security tokens represent a share in a real-world asset, like a company, real estate, or a piece of art. These tokens typically go through a regulatory compliance process and are subject to securities laws.
- tZERO (TZROP): A security token representing equity in the tZERO trading platform.
- Polymath (POLY): An Ethereum-based security token allowing entities looking to raise capital to issue standardised security tokens that are compliant with SEC regulations.
- SiriHub (SIRIHUB): An SEC-regulated real estate-backed investment token in Thailand that allows investors to gain stable yields.
Non-Fungible Tokens (NFTs)
NFTs are unique digital assets that represent ownership of a specific item. They are indivisible and irreplaceable and have gained enormous popularity in the worlds of digital art, collectables, and gaming.
- CryptoKitties: A game built on NFTs, where each CryptoKitty is a unique, collectable digital cat.
- Bored Ape Club: A digital art collection of cartoon apes built on the Ethereum blockchain.
- Axie Infinity: An NFT-based online video game. Players collect and mint digital pet NFTs, known as “Axies”.
Governance tokens allow holders to participate in the decision-making process of a blockchain project. This includes voting on network upgrades, protocol changes, and other key decisions.
- Maker (MKR): Allows holders to vote on decisions regarding the stablecoin DAI.
- Aave (AAVE): The native token of the Aave lending platform that users can earn interest through staking.
- Compound (COMP): An ERC-20 asset that enables community governance of the Compound protocol, such as votes and proposals.
Wrapped tokens are representations of cryptocurrencies or assets from other blockchains on a different blockchain. They make it possible to use assets from one blockchain on another.
- Wrapped Bitcoin (WBTC): Represents Bitcoin on the Ethereum blockchain as an ERC-20 token, enabling holders to participate in Ethereum-based dApps.
- Wrapped Ethereum (WETH): Represents the ETH token on the Ethereum network. Used as a medium of exchange for liquidity provision on decentralised exchanges (DEXs), such as Uniswap and Pancakeswap.
- Synthetix USD (sUSD): A synthetic stablecoin on the Ethereum blockchain and part of the Synthetix protocol. Created by locking collateral into Synthetix smart contracts, and used for various dApps.
Stablecoins are designed to maintain a stable value by pegging it to an underlying asset, often a fiat currency like the US dollar. They offer stability in a highly volatile crypto market and are widely used for trading and as a store of value.
- Tether (USDT): Tether USDT is a widely used stablecoin pegged to the value of US Dollar.
- USD Coin (USDC): Much like Tether, USDC is also fully backed by US Dollar assets and pegged to its value.
- Tether Euro (EURT): Another stablecoin issued by Tether, that is pegged 1:1 to the Euro.
Payment tokens, as the name suggests, are designed for everyday transactions. They aim to overcome scalability issues and high transaction fees often associated with other cryptocurrencies.
- Bitcoin (BTC): The first-ever cryptocurrency that uses blockchain technology to support peer-to-peer transactions without the need for third parties.
- Litecoin (LTC): Originally created as a “lighter” version of Bitcoin, it’s used for faster and cheaper transactions.
- Ripple (XRP): The native token of the Ripple Protocol that facilitates fast and cheap transfers on its network.
Privacy coins offer enhanced anonymity and privacy features. They hide transaction details, including sender and receiver addresses.
- Monero (XMR): Uses blockchain technology with privacy-enhancing technologies to achieve anonymous transactions that are difficult to trace.
- ZCash (ZEC): A fork from the original Bitcoin codebase, that uses the zk-SNARK security protocol to allow fully shielded transactions in which the sender, recipient and amount are encrypted.
- Dash (DASH): Allows users to execute private transactions via the PrivateSend feature, which hides transaction details.
Collectible tokens are a subset of NFTs, specifically used for the collection of unique items, such as virtual trading cards, digital art, and virtual real estate.
- Decentraland (MANA): Used for the purchase of virtual land parcels in the Decentraland metaverse.
- Sandbox (SAND): Enables players to buy and sell in-game assets in the Sandbox metaverse.
- ApeCoin (APE): Powers the APE ecosystem and provides holders with access to exclusive physical and digital events, online games and Web3 services.
Asset-backed tokens are linked to tangible assets, like gold, real estate, or commodities. They offer the benefits of blockchain technology while providing stability due to their backing.
- PAX Gold (PAXG): A crypto token backed by physical gold.
- Tether Gold (XAUt): Much like PAXG, Tether Gold is also a cryptocurrency backed by physical gold.
- SilverCoin (SC): An Ethereum-based ERC-20 cryptocurrency backed by silver.
The world of crypto tokens is diverse, offering an array of use cases. As the blockchain and cryptocurrency ecosystem continues to evolve, we can expect to see even more types of tokens emerge, further expanding the possibilities and utilities of this revolutionary technology.
These tokens aren’t just digital assets; they represent a paradigm shift in how we interact with the digital and physical world.