What does Token mean? A deep understanding of the core differences between Token and Coin

In the early stages of cryptocurrency, the industry primarily used the term “Coin” to refer to digital assets like Bitcoin, Litecoin, and others. However, with the advent of Ethereum, the concept of “Token” gradually emerged. Since Chinese translations often use “代幣” or “加密貨幣” for both, many investors find this confusing. This article will delve into the meaning of Token, various classification methods, and clarify the fundamental differences between it and Coin.

Detailed Explanation of Token Meaning: Definition and Characteristics

Token, commonly translated in Chinese as pass, token, or coin, represents a specific right, certificate, or digital asset form that can be traded, transferred, and exchanged on the corresponding blockchain.

Understanding the meaning of Token hinges on recognizing its dependency characteristics. Tokens are issued based on existing blockchain ecosystems and do not have their own independent public chain. In 2015, Ethereum introduced the ERC-20 token standard, enabling any developer to issue their own Token on its network. To this day, Ethereum remains the largest public chain platform in terms of total Token issuance.

Broadly speaking, Token is a collective term encompassing all non-public chain tokens, including DeFi application tokens, Layer-2 solution tokens, NFT-related tokens (such as APE, SAND, etc.), and other categories.

The Three Major Classification Systems of Token

According to the classification framework of the Swiss Financial Market Supervisory Authority (FINMA), Tokens can be divided into three main types:

Payment Tokens

Payment tokens aim to achieve secure, efficient, and low-cost payment functions; stablecoins are typical representatives of this category. They serve as a medium of exchange in actual transactions.

Utility Tokens

Utility tokens provide access passes for various blockchain applications, mainly existing in the form of ERC-20 tokens on Ethereum. These tokens grant holders the right to use specific applications or services.

Asset Tokens

Asset tokens serve as a form of asset development for projects, representing a certain interest in the project. Holding such tokens means becoming a participant in the project and enjoying the value appreciation brought by the tokens, similar to stocks in some aspects. It is important to note that in the crypto field, holding asset tokens does not usually equate to owning the project’s ownership, and investors often do not have dividend rights.

It is worth noting that real-world Tokens often possess hybrid attributes; a single Token may have two or even three of these features simultaneously, making it difficult to fully describe its nature with a single classification.

The Fundamental Difference Between Token and Coin

The most fundamental difference lies in ownership: Coins have their own independent blockchain infrastructure.

Bitcoin (BTC) runs on the Bitcoin blockchain, and Ether (ETH) runs on the Ethereum blockchain. These are the native assets of their respective networks, forming the foundational support of the blockchain.

In contrast, Tokens do not have independent blockchains; they are built on existing blockchain ecosystems. This difference directly impacts the development of the Token’s application ecosystem, which is usually less extensive than that of Coins and, in some cases, may not support independent application development at all.

The following comparison table details the main differences:

Pros and Cons of Investing in Token vs. Coin

Investing in Tokens and Coins each has its advantages; they complement each other and are both indispensable.

If we understand Coin as a public chain-based cryptocurrency, then Token can be viewed as an application-oriented cryptocurrency. The former focuses on solving infrastructure issues, indirectly meeting user needs; the latter develops various applications and services based on this infrastructure to directly address real-life needs.

Compared to Coins, Tokens often have greater application scope and scalability, and are generally easier to implement. The value of Coins is mostly concentrated on infrastructure optimization; if the goals are not achieved, they face difficulties. Many former public chain projects like QTUM and BTM are examples. Tokens, on the other hand, can offer more diversified services and applications. Even if a certain application is not favored by the market, it can pivot to other directions. For example, MakerDAO’s RWA business is a good illustration.

Additionally, Token price volatility is usually more pronounced than that of Coins. For instance, fluctuations in UNI, SNX, MKR often exceed those of BTC and ETH, especially during bull markets. This high volatility creates more trading opportunities for short-term investors but also entails higher risks.

Two Main Ways to Trade Tokens

Spot Trading

Spot trading involves full settlement based on actual assets. For example, if the current price of UNI is $3, and Trader A sells one UNI to Trader B, A receives $3 from B, and B gains full ownership of the UNI.

A special reminder: when conducting spot trading, beware of the risk of fake tokens with the same name. Some malicious teams may copy well-known token names and issue worthless or unlisted tokens with the same name. After purchasing such fake tokens, investors often face difficulties selling them. Therefore, before any Token transaction, verify the token’s contract address via official websites or blockchain explorers to ensure you are buying the correct asset.

Margin Trading

Besides spot trading, Tokens can also be traded via margin trading. This type of trading generally does not involve actual token holdings, thus avoiding fake token risks.

Margin trading is a non-full amount trading method, where investors only need to use part of their assets as margin, without paying the full amount. For example, using 10x leverage to go long on UNI at $3, the investor only needs to invest $0.3 to open a 1 UNI position. If trading via CFDs or U-based contracts, the investor does not actually hold the native Token UNI.

Because Token volatility usually exceeds that of Coins, investors should be especially cautious with position sizing and leverage. It is generally recommended not to exceed 10x leverage. Although daily price swings of BTC over 10% are rare, newly listed tokens often experience such volatility, and investors must be alert to liquidation risks.

Core Recommendations for Investing in Tokens

Whether engaging in spot or margin trading, the primary consideration is to choose a secure, reliable trading platform regulated by authoritative institutions. The platform’s security and compliance directly relate to fund safety and are prerequisites for Token investment.

In practice, investors should master basic trading procedures, risk management knowledge, and develop reasonable investment strategies based on their risk tolerance. By thoroughly understanding the meaning of Token, Token classification, and trading mechanisms, investors can make more informed decisions in the crypto asset space.