Understanding the Meaning of Token in Chinese: From Basic Concepts to Investment Strategies

What is a Token in Chinese? One Sentence to Make You Understand Instantly

In the world of cryptocurrency, Token in Chinese is usually translated as “pass,” “token,” or “digital token,” essentially a form of existence representing specific rights, certificates, or digital assets that can be traded, transferred, or exchanged on the corresponding blockchain.

Many people tend to confuse Token with Coin, which actually stems from the emergence of Ethereum. Early cryptocurrencies only had Coins like Bitcoin, Litecoin, Dogecoin, without the concept of Tokens. After Ethereum launched the ERC-20 standard in 2015, anyone could issue their own Token on it. Since then, Coin and Token have been used interchangeably, leading to both being translated as “代幣” or “cryptocurrency” in Chinese, making it hard for investors to distinguish.

Token vs Coin: What Are the Fundamental Differences?

To understand the difference between Token and Coin, the key point is: Coins have their own independent blockchain, while Tokens do not.

Bitcoin (BTC) runs on the Bitcoin blockchain, and Ether (ETH) runs on the Ethereum blockchain. They are native assets of these networks, belonging to Layer-1. Tokens like UNI, MATIC, SAND are built on existing blockchains (usually Ethereum), and may be Layer-2 or Layer-3, without their own dedicated public chain.

This difference means that the ecosystem applications of Tokens are usually less flexible than Coins; some cannot even be used to build applications independently and must rely on the main blockchain ecosystem.

There are also clear differences in functions and issuance methods:

What Are the Three Main Types of Tokens? Investors Must Know

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

Type 1: Payment Tokens (Payment Tokens)
These Tokens aim to realize secure, efficient, low-cost payment functions. The most typical examples are various stablecoins. They directly peg to real-world currencies, with the most straightforward and clear use cases.

Type 2: Utility Tokens (Utility Tokens)
Utility Tokens are the main form of ERC-20 tokens on Ethereum, designed to provide access rights or serve as pass for various applications. For example, UNI is the governance token of Uniswap, COMP is the governance token of Compound, and holders can participate in protocol governance and voting.

Type 3: Asset Tokens (Asset Tokens)
Asset Tokens are an extension of emerging asset services. Holding such tokens means being a part of the project and enjoying the value benefits brought by the token, somewhat similar to traditional stocks. However, investors in the crypto space generally do not own the project’s ownership or dividends.

In practical applications, a Token often possesses two or even three of these attributes simultaneously, not strictly one or the other.

Two Ways to Invest in Tokens: Spot Trading and Margin Trading

Spot trading is the most direct method. For example, if the current price of UNI is $3, paying $3 gets you ownership of 1 UNI. The advantage is relatively controlled risk, but the downside is the need for full payment.

A special reminder: Beware of fake tokens with the same name. When a well-known Token becomes popular, malicious teams may issue tokens with the same name but worthless to confuse investors. Buying such fake tokens could result in never being able to sell them. Always verify the contract address on the official website or blockchain explorer before trading.

Margin trading offers more flexible participation. These trades usually do not involve actual token holdings, avoiding fake token risks. Margin trading allows you to pay only a portion of the funds as margin, for example, using 10x leverage, controlling a position equivalent to $0.3 for 1 UNI.

However, leverage is a double-edged sword. Compared to Coins, Tokens tend to be more volatile, with fluctuations in tokens like UNI, SNX, MKR significantly exceeding BTC and ETH, especially during bull markets. This creates more opportunities for short-term traders but also higher liquidation risks. Therefore, when trading on margin, always control the leverage ratio—generally not exceeding 10x—and set stop-loss and take-profit orders to manage risks.

Investing in Tokens vs Coins: Pros and Cons

If you consider Coins as blockchain-based cryptocurrencies, then Tokens are application-based cryptocurrencies. The former mainly addresses infrastructure issues, while the latter provides various applications or services on top of that infrastructure. Both are closely related and indispensable.

In comparison, Tokens have broader application potential. The value of Coins is often limited to building and optimizing infrastructure; if they fail, there’s no alternative. For example, projects like QTUM and BTM gradually declined due to lack of application scenarios. Tokens, on the other hand, can be flexibly innovated in various application scenarios. Even if one application is not popular, new products can be developed. MakerDAO, for instance, expanded from stablecoin DeFi to RWA (Real-World Asset Tokenization).

Higher volatility means greater profit potential and risks. The high volatility of Tokens offers more opportunities for short-term trading but also tests investors’ psychology and risk management skills. Ultimately, whether to trade Tokens or Coins depends on your investment style and risk tolerance.

Conclusion

The key to understanding the Chinese concept of Token is recognizing the fundamental differences between Token and Coin in blockchain level, functional positioning, and application scenarios. As application tokens, Tokens are playing an increasingly important role in DeFi, NFT, Layer-2, and other ecosystems. Whether you choose spot or margin trading, the first step in investing in Tokens is always to select a safe, regulated trading platform—this is the foundation for protecting your assets.