Hello everyone..
Welcome to another day of exploring Web3 Engineering.
In our cyrpto / blockchain world, we have definitely came across various different kinds of tokens. Some talk about stable coins, some keep hyping about the meme coins, and some hold governance tokens. Being a blockchain / crypto enthusiast, one must understand the differences between these, no matter whether they are from a technical background, financial background or simply just exploring. So, in today’s blog let us debunk these token types and understand what and where are they used.
Classification of Tokens
Technical Classification
There are basically 3 types of tokens when we classify them on the technical front
Fungible Tokens - Fungible tokens are interchangeable among them without losing value. Which means just the real world money, no matter which Rs. 100 /- we have, we can exchange it with another Rs. 100/- note without losing any value since each token worth the same value.
Non - Fungible Tokens - NFTs are the tokens that are not interchangeable without losing value. Which means just the art collections, even though all the paintings are from the same artist, no two paintings are same and they may or may not worth same value.
Semi - Fungible Tokens - Semi Fungible tokens combines both the properties of Fungible and NFTs. They operate fungible with some conditions and NFTs otherwise. We can understand them as gaming assets. Even though all weapons are from the same game, weapons are of different kind and also there is one copy of each weapon per user.
Use case classification
Based on the use case and requirements, one of the above 3 kinds of tokens can be used to implement them. There are various types of tokens / coins available in the market. Here are some of the popular or must know types
Native Tokens - Native tokens are the tokens that are used to pay for the gas to make transactions on the given network. They can be only be created when the blockchain network is started and there is only one native token per network mostly and they are fungible in nature.
- Example: Ethereum (ETH), Bitcoin (BTC), Sui(SUI) etc.
Wrapped Tokens - These are the tokens that are developed as a wrapper for another token to provide additional functionality for the original tokens. These are always mined and burned on demand by depositing and withdrawing the original token from into the wrapped token smart contract.
- Example: Wrapped Ethereum (WETH), Wrapped Bitcoin (WBTC) are tokens developed to add ERC20 functionality for the native tokens.
Stable Coins - Stable coins are usually fungible tokens that are pegged to a real world asset to maintain stability in the exchange price of the token.
- Example: USDC and EURC are stable coins launched by Circle.com which are pegged to US Dollar and European EURO respectively.
Governance Tokens - Governance tokens are used to represent the voting power of user in the election (decision making) process of a Decentralized Autonomous Organization (DAO). The token holders will be able to propose, vote and accept or reject changes that for the ecosystem and the voting power is decided of the user is decided by the quality / quantity of the tokens held by them.
- Example: Uniswap (UNI) Token is the governance token for the Uniswap protocol.
Meme Coins - These are the tokens that are used to represent a trending meme or inspired from a famous internet meme. They often start as side projects but gain significant popularity and value due to social media trends, community-driven hype, and celebrity endorsements. They typically don’t have any goal or road map to them.
- Example: Dogecoin, Shiba Inu are one of the popular memecoins in the crypto market.
RWA Tokens - Real World Asset Tokens or RWA Tokens are used to represent real world entities (typically real estate). The token holders are considered as the owners of the assets and price is derived based on the real world assets.
- Example: Centrifuge tokenises various real-world assets, including business invoices and carbon credits, allowing these assets to be used as collateral in DeFi lending pools.
There are more to this classification such as utility tokens, tax tokens, AI agents etc. Day by day, we are able to observe more and more use cases are being discovered to adopt blockchain into our day to day life and the emerging opportunities are increasing the efficiency and the ease-fullness for the organizations to operate.
What are the other use cases do you think that the emerging blockchain world can offer ? Comment down below.
That’s all for the day. Feel free to comment down your questions.
