In-Depth Analysis of Crypto Assets: Definition, Uses, and Investment Guide

From Coin to Token: The Evolution of Cryptocurrency

In the early stages of cryptocurrency development, the market primarily circulated assets like Bitcoin, Litecoin, Dogecoin, and other Coin-type assets, with relatively simple and clear terminology. It wasn’t until the advent of Ethereum, introducing smart contract mechanisms, that the era of large-scale Token issuance began. Today, the mixed use of Coin and Token has become commonplace, collectively referred to in Chinese as “tokens” or “cryptocurrencies,” which has led many investors to be confused about the fundamental differences between the two. To understand the crypto asset ecosystem, it is essential to clarify these two core concepts.

What exactly is a Token?

A Token is a digital asset certificate issued on an existing blockchain, representing specific rights, functions, or value, and can be traded, transferred, staked, and operated within that blockchain ecosystem. In simple terms, a Token does not exist independently but is built upon the ecosystem of other public chains.

In 2015, Ethereum introduced the ERC-20 token standard, an innovation that enabled any developer to easily issue their own Token on its platform, significantly lowering the technical barriers for token issuance. Currently, Ethereum remains the blockchain platform with the largest volume of Token issuance.

Broadly speaking, Token is a collective term for all non-native assets of public chains. This includes DeFi protocol tokens, Layer-2 solution tokens, NFT tokens (such as APE, SAND), and others, all falling under the category of Tokens.

Classification of Token uses: Multi-dimensional application forms

According to the classification standards of the Swiss Financial Market Supervisory Authority (FINMA), Tokens can be divided into three main types, each with different purposes and value propositions.

Payment Tokens

This type of Token aims to achieve secure, efficient, and low-cost peer-to-peer payment functions. Stablecoins (such as USDC, USDT) are typical representatives of this category, with their value anchored to fiat currencies or a basket of assets, used for payments, savings, and fund transfers.

Utility Tokens

Utility Tokens provide access rights and usage credentials for various applications. Most ERC-20 tokens on Ethereum fall into this category, such as Uniswap’s UNI, Aave’s AAVE, Maker’s MKR, etc. Holders can participate in protocol governance, earn fee sharing, or enjoy specific functionalities through these tokens.

Asset-backed Tokens

This type of Token represents ownership or revenue rights to a project or asset, similar to equity in traditional finance. Holding an asset-backed Token means becoming a stakeholder in the project, sharing its growth benefits. However, it should be noted that the crypto community generally does not involve legal company ownership or dividend rights.

In practice, many Tokens possess two or even three of these attributes simultaneously. For example, governance tokens have both functional (voting rights) and asset (value storage) properties.

The fundamental difference between Token and Coin

The most fundamental difference is: Coins have their own native blockchain, while Tokens are built on existing blockchains. Bitcoin operates on the Bitcoin blockchain, Ethereum on the Ethereum blockchain; these are their respective network’s native assets. Tokens do not have an independent blockchain foundation; their ecosystem applications are often limited by the performance and restrictions of the parent chain, and they may not be able to fully develop applications independently.

Investment perspective: Comparing advantages and disadvantages of Token and Coin

From an investment standpoint, Tokens and Coins each have their advantages and complement each other.

Infrastructure vs. Application Layer: If we consider Coins as assets of the underlying infrastructure layer public chains, then Tokens are products of the application layer. The former addresses the efficiency and security of the blockchain network itself, providing a foundational support for the entire ecosystem; the latter develops various practical applications based on this foundation, directly serving user needs.

Innovation Flexibility: In comparison, the application scenarios and service expandability of Tokens are stronger, and their implementation is easier. The value of Coins mainly focuses on optimizing the infrastructure. If they fail technically or in the market (such as Quantum Chain QTUM, Bytom BTM), it is often difficult to reverse the situation. Tokens, on the other hand, can launch diversified products on the same platform; for example, MakerDAO operates both a stablecoin (MKR) and real-world asset (RWA) businesses, flexibly responding to market changes.

Volatility and Risks: The price volatility of Tokens is generally higher than that of Coins. Tokens like UNI, SNX, MKR often experience daily fluctuations exceeding BTC and ETH, especially during bull markets. This provides more profit opportunities for short-term traders but also entails higher risks, requiring investors to manage their positions carefully.

Token investment methods: Two trading modes

Spot Trading of Tokens

Spot trading involves actual asset transactions at full value. For example, if the current price of UNI is $3, a buyer purchasing 1 UNI at $3 gains full ownership, and the token is immediately transferred to their wallet.

Important tip: In spot trading, beware of the risk of fake tokens with the same name. Multiple teams may issue tokens with identical names, most of which are worthless or have never been listed on exchanges. Investors who buy fake tokens face the risk of being unable to sell. Therefore, before trading any Token, verify the token’s smart contract address on the project’s official website or blockchain explorers (such as Etherscan) to ensure you are purchasing the official genuine token.

Margin Trading of Tokens

Besides spot trading, Tokens can also be traded via leverage. Unlike spot trading, margin trading generally does not involve actual token transfer, and both risks and rewards are amplified.

Margin trading uses a non-full amount trading mode, where investors only need to deposit a portion of funds as margin to control a position much larger than the margin. For example, using 10x leverage to go long on UNI: if UNI’s price is $3, the investor only needs to pay $0.3 to open a position of 1 UNI. In CFD or perpetual contract trading, investors do not actually hold the native tokens but profit or lose based on price fluctuations.

Leverage risk management: Due to the high volatility of Tokens compared to Coins, especially for emerging tokens with sharp price swings, investors should strictly control leverage ratios, generally not exceeding 10x. While daily volatility of Bitcoin rarely exceeds 10%, such extreme fluctuations are common in Tokens, increasing the risk of liquidation.

The importance of choosing a secure trading platform

Whether engaging in spot or margin trading, a safe and reliable trading platform is the top priority. Investors should select authorized, well-regulated platforms with comprehensive security measures and sufficient liquidity. Avoid trading on illegal or high-risk platforms to protect your funds.

Summary

Tokens are an important component of the blockchain ecosystem, covering multiple dimensions such as payments, governance, and asset representation. Understanding the nature and classification of Tokens is crucial for crypto asset investors. Whether engaging in spot or leveraged trading, mastering risk management principles, choosing legitimate platforms, and verifying token authenticity are essential steps for successful Token investment.