Understand what a Token means in one article — from basic definitions to trading strategies

Many people, after entering the crypto world, often get confused between the terms Token and Coin. Early Bitcoin, Litecoin, and Dogecoin were all called Coins, so there was little confusion. But since the emergence of Ethereum, a large number of Tokens have flooded the market, and in Chinese they are translated as “代幣” or “加密貨幣,” which has caused widespread cognitive confusion. Today, we will thoroughly clarify what Token means and what the fundamental differences are between it and Coin.

What exactly is a Token?

Simply put, a Token is a digital form representing specific rights, certificates, or assets that can be traded, transferred, and exchanged on a blockchain. In Chinese, it is usually translated as “pass,” “token,” or “代幣.”

The key point is: Tokens do not have their own independent blockchain. They must rely on existing public chains to exist. After Ethereum launched the ERC-20 standard in 2015, any developer could easily issue Tokens on Ethereum, which directly led to an explosive growth in the number of Tokens. To date, Ethereum remains the public chain with the largest Token issuance.

Therefore, a Token is a collective term representing all “tokens built on existing blockchains,” including DeFi tokens, Layer-2 ecosystem tokens, NFT tokens (such as APE, SAND), and so on.

What types of Tokens are there? What are their functions?

According to the classification by the Swiss Financial Market Supervisory Authority (FINMA), Tokens are mainly divided into three categories:

Payment Tokens: Their core function is to enable secure, efficient, and low-cost payments. The most typical example is stablecoins.

Utility Tokens: Provide access rights to various applications and services, which is a characteristic of most ERC-20 tokens on Ethereum. Users holding these Tokens can use the functions of corresponding applications or services.

Asset-backed Tokens: Represent ownership of a project or asset. Holders can share in the value appreciation of the project, somewhat similar to stocks, but it’s important to note that crypto investors usually do not have actual ownership or dividend rights in the project.

In practice, a Token often possesses two or even three of these attributes simultaneously, making it difficult to distinguish completely.

What is the fundamental difference between a Token and a Coin?

The most essential difference is: Coins have their own independent blockchain and are the native assets of that blockchain. Bitcoin runs on the Bitcoin blockchain, Ether runs on Ethereum.

While Tokens do not have their own blockchain, they depend on existing blockchain ecosystems. Because of this, the application ecosystem of Tokens is usually less rich than Coins, and it’s even difficult to develop applications independently.

Is it more worthwhile to invest in Tokens or Coins?

Actually, this is a false dilemma, because both are closely related and each has its advantages.

Think of Coins as the infrastructure layer, and Tokens as the application layer. The former mainly solves issues of the blockchain itself, while the latter develops various applications and services on this foundation to directly meet user needs. They complement each other and are both indispensable.

In comparison, Tokens have the advantage of greater application scalability and easier implementation. The value of Coins is limited to their underlying infrastructure; if they fail, there’s little room for recovery (such as Qtum, BTM, etc.), whereas Tokens can flexibly launch different services and applications, and if they fail, they can still adjust direction (like MakerDAO launching RWA business).

Another obvious difference is: Tokens are usually much more volatile than Coins. For example, UNI, SNX, MKR often experience price swings exceeding Bitcoin and Ethereum, especially during bull markets. This provides more opportunities for short-term traders but also comes with higher risks.

How to trade Tokens?

Like Coins, there are two main ways to trade Tokens:

Spot trading is the most direct method. You trade with actual assets. For example, buying 1 UNI at $3 means you truly hold that 1 UNI.

A special reminder: Be cautious of fake tokens when trading spot. Suppose a team issues a high-value token called ABC, and another team issues a token with the same name but worthless. Beginners are prone to fall for it. The way to prevent this is to verify the token’s contract address on the official website or blockchain explorer.

Margin trading is a way to amplify gains using leverage. Unlike full-amount spot trading, margin trading requires only a portion of funds as collateral. For example, using 10x leverage to go long on UNI, you only need $0.3 to open a position for 1 UNI. In derivatives and U-based contracts, you might not even need to hold the native token.

It’s crucial to emphasize risk control. Since Tokens are inherently more volatile than Coins, leverage should not exceed 10x. Bitcoin’s daily volatility of 10% is rare, but many Tokens—especially newly listed ones—experience such swings regularly, increasing the risk of liquidation.

Regardless of the trading method chosen, the most important prerequisite is: Choose a safe, regulated trading platform. This is the first line of defense for protecting your assets.

Summary

Understanding what a Token means hinges on three points: it has no independent blockchain, it is an application layer rather than a foundational layer, and its volatility and flexibility are higher. Whether investing or trading, you should make choices based on your risk tolerance, avoid blindly chasing trends, and refrain from excessive leverage. In this market full of opportunities, risk management is often more important than chasing quick profits.