Seven (7) Types of Crypto Tokens explained

Crypto tokens are digital assets that make up a blockchain. They are different from digital coins to the extent that they are part of the ecosystem relating to it. You should see a crypto token as the Kobo aspect of the Naira. In this article, we explain this term more.

1. What's a crypto token

A form of digital currency that is built in a blockchain with its own smart contract and economic value. It is a sub-coin of a primary cryptocurrency such as Ethereum, Bitcoin, Solana, and Ton. 

Crypto tokens are built on blockchain, which means that they form part of a particular Cryptocurrency ecosystem. For example, Notcoin ($NOT), Real Dogs ($DOGS), Avacoin ($AVACN), and other crypto projects that are built on The Open Network (TON) blockchain are examples of tokens in the digital assets world. They are, therefore, part of the TON ecosystem, which is a crypto asset on its own.

By economic value, we mean that the token can be utilized for transaction purposes. Therefore, it can be traded in decentralized or centralized cryptocurrency exchanges. $NOT mentioned above is tradable on various exchanges such as Bybit and Binance. 

They can be classified either as meme coins or stablecoins. For example, USDT is a stable coin built on the Ethereum blockchain. A primary issue with them is that they are not as secure as primary digital assets and may require transaction fees (gas fees) that are payable via the native coin when a transaction is carried out.

2. Seven (7) Types of crypto token

2.1 Governance token

This is a type of crypto token used to vote on a platform or project. A current example is Over Protocol. This project has a separate token referred to as a governance token. Holders of it have the right to vote on a particular issue within the project.

2.2 Platform token

Tokens used to build a decentralized application on a blockchain are referred to as platform tokens. We can say that all crypto tokens are platform tokens because they are built for the decentralized (DEX) app except if there is no DEX for it. An example is Uniswap, a DEX built on Ethereum with its native token referred to as $UNI. However, USDT is not a platform token because it has no DEX app.

2.3 Utility token

Here, the crypto asset serves as a currency only on the DEX application. It is used to pay for products or services on the DEX app. Outside this platform, the token is useless. This makes it different from platform and transaction tokens. In a DEX, the platform digital currency is not necessarily the utility currency. Also, a transaction token can be used outside the DEX platform.

2.4 Security token

This behaves as a security or collateral asset in traditional finance. They are a representation of financial assets such as real estate, shares, stocks, or bonds. A holder of a security token implies that he has ownership of a financial asset. As in traditional finance, this token can follow a similar valuation process.

2.5 Non-fungible token

Non-fungible tokens (NFT) are used to represent digital arts. It helps to preserve the originality of digital art or other items, such as a tweet or a video, to avoid copying by others. Therefore, it serves as copyright protection for a unique digital art.

2.6 Transaction token

They are crypto assets used for daily transactions. However, it must be acceptable to the parties involved. It has lower transaction fees compared with using traditional currencies. They are also used for cross-border payments, thereby reducing transaction fees that are peculiar to traditional currencies on cross-border payments. USDC and USDT are two good examples of this crypto token.

3. Conclusion

In conclusion, crypto tokens are the Kobo aspect of the Naira in the Nigerian currency. They are also referred to as meme coins and are tradeable and built within a particular blockchain, such as the TON blockchain as stated earlier.