Different Types of Crypto Tokens, Explained

In the world of Web3, you might have noticed there are a lot of different coins and tokens. From NFTs to popular cryptocurrencies like Bitcoin and ETH—there’s a lot going on. Learning to decipher the different types of crypto tokens is crucial to navigating the space. 

Below we’ll take a look at nine different types of crypto tokens along with examples for each one, before breaking down the difference between a “coin” and a “token”.

Arguably, the most well-known crypto token is an NFT. This token is a cryptographic asset that’s created using blockchain technology. NFTs can’t be exchanged or traded the way other crypto tokens can since they’re all technically one-of-a-kind, hence they each have their own value.

An NFT can represent a number of things both in the physical and digital realms. Art, music, in-game items, tickets, and of course collectibles are all examples of what an NFT can represent in digital form.

The cool thing about NFTs is that they provide holders with an array of perks including physical and digital goods, access to events and mentors, and voting rights to token-gated establishments. 

NFTs can be updated and additional utilities can be added at any time. There are really no limits to what these tokens can stand for or provide to holders.

Examples

• CryptoPunks is one of the first NFT projects created on the Ethereum blockchain. It’s recognized as the project that kickstarted the NFT revolution and is commonly seen as a solid blue-chip investment.
  
• Axie Infinity is one of the most popular play-to-earn blockchain games. Each Axie character is an NFT that you can trade for real money or breed to create additional characters and build your team.
  
• Beeple is a digital artist who’s accredited for shining light on the NFT space. His NFT collectible artwork, Everydays: The First 5000 Days, sold for $69 million, making him the third most valuable living artist in terms of auction prices

A stablecoin is a type of cryptocurrency that’s pegged to a stable asset such as the US dollar. The aim of a stablecoin is to provide a more stable and less volatile alternative to other cryptocurrencies, such as Bitcoin and Ethereum, which often experience significant price fluctuations.

Stablecoins are often used as a payment for goods and services, and provide users with lower transaction fees compared to other cryptocurrencies and even some popular money transfer services like PayPal. Stablecoins are especially convenient for executing international transactions as the fees don’t increase just because someone lives halfway around the world.

Examples

• Tether (USDT) is perhaps the most well-known stablecoin that’s pegged to the US dollar. Tether was created to serve as a stable and transparent alternative to traditional fiat currencies for use in an array of cryptocurrency transactions.
  
• USDC is another stablecoin that’s tied to the US dollar. It’s designed to provide a transparent and fully collateralized stablecoin and is issued by numerous companies including Circle and Coinbase.
  
• Bacon Protocol (bHOME) is a token that’s backed by real mortgages for homes and properties in the U.S. This coin can actually grow in value as loans are repaid and the interest is paid into the bHome contract.

Decentralized tokens (Defi tokens) are created specifically for use in conjunction with decentralized platforms that operate using smart contracts. Defi tokens have several uses such as providing collateral for loans, liquidity for trading, and enabling users to participate in yield farming.

These tokens also provide users access to information that exists outside of the blockchain by integrating the data into the network.

Examples

• Chainlink (LINK) enables smart contracts to securely connect to external data sources, allowing real-world data and events to be integrated into the blockchain.
  
• Uniswap (UNI) allows users to utilize an automated market maker (AMM) model to buy and sell a variety of cryptocurrencies on a decentralized exchange.
  
• Aave (AAVE) enables users to lend and borrow a variety of cryptocurrencies via a decentralized lending and borrowing platform that employs a unique liquidity pool model.

Often referred to as a "digital coupon" or a “redeemable”, utility tokens enable holders access to specific products and services. These tokens are generally distributed during crowd sales when a project executes an initial coin offering (ICO).

Although some of the utilities provided by a utility token are offered within the digital blockchain ecosystem, many of the benefits could include real-life perks such as physical products, exclusive access to events, or even mentorship programs.

Unlike NFTs, utility tokens are fungible meaning they can be traded for another token of the same type or a different token of equal value. 

Examples

• ApeCoin (APE) is a utility token created specifically for the Bored Ape Yacht Club ecosystem. It enables holders to participate in the project’s governance votes in addition to providing access to members-only features like games, events, and other services.
  
• Decentraland (MANA) is a token used as payment in the virtual world of Decentraland. It’s used mainly to purchase LAND and other virtual goods offered in the game.
  
• Enjin Coin (ENJ) is a popular utility token that’s backed by billions of blockchain-based assets. It’s largely known for its involvement in the gaming ecosystem and supports the trade of in-game assets.

Payment tokens are more commonly known as “crypto”. As you might have guessed, these tokens are used to buy and sell assets and pay for blockchain-based transaction fees without the need for an intermediary.

Technically, most all cryptocurrencies could be categorized as payment tokens assuming they’re used as a form of exchange. More commonly though, payment tokens are used for nothing other than payments. Hence, they don’t provide holders with any added utilities beyond their monetary value.

Examples

• Ethereum (ETH) is the native token of the Ethereum blockchain. It’s commonly used as a payment method for blockchain-related purchases like NFTs and is even used externally for real-world payments.

• Bitcoin (BTC) is said to be the first cryptocurrency ever created and is used solely as a decentralized form of payment for both digital and physical goods and services.

• Solana (SOL) is used to pay for digital assets and transaction fees on the Solana network. It’s commonly referred to as Ethereum’s rival because of its efficiency and low cost to transact. 

Security tokens are digital assets that operate on existing blockchain networks and represent ownership or stake in a real-world company or asset. Essentially, these tokens replace traditional means of investments like stocks or bonds by offering investors fractionalized ownership via digital tokens.

Using blockchain technology, the entity defines the investment criteria before tokenizing it and offering it to investors. This isn’t much different than when companies gave out paper stock certificates to investors. 

The main difference is since these tokens live on the blockchain, there is a public and immutable record that anyone can view and refer back to.

Examples

• BCAP is an Ethereum-based smart contract token and is the first tokenized venture fund by Blockchain Capital.
  
• EXOD acts as a digital representation of a Class A common stock in Exodus Movement. This token allows both retail investors and accredited investors to participate in the stock.

• VEVU is a token created specifically for a Wyoming Corporation that allows international investors the opportunity to invest along with non-voting equity shares (meaning holders are not entitled to vote for the election of directors).

Unlike traditional cryptocurrencies like BTC and ETH, privacy coins allow you to send money anonymously. Using various methods, transactions completed using privacy coins make it difficult for anyone to verify who sent or received payment.

Additionally, payment details including the transaction amount and dates remain anonymous. This anonymity is generally achieved by using a one-time stealth address and mixing numerous transactions into one.

Examples

• Zcash (ZEC) is a fast and confidential cryptocurrency offering users low fees. It uses a security protocol to ensure that any involved party is verified without revealing any info about the party or the network.
  
• Monero (XMR) is used to pay for goods and services all around the world in privacy and with extremely low transaction fees.
  
• Dash (DASH) is a currency that allows you to send money to anyone, anywhere, anonymously, and for less than one cent.

Simply put, an exchange token is a type of cryptocurrency that’s issued by an exchange. These tokens are generally created to increase an exchange’s liquidity and incentivize people to use their platform. Although effective, exchange tokens are one of the most volatile types of cryptocurrency on the market.

Exchange tokens are commonly used to pay transaction fees on the exchange. And although less common, they can also be used as a governance token to offer holders voting power for the future development of the platform.

• Binance USD (BUSD) is issued by the Binance exchange and backed by a US dollar reserve. It’s fully collateralized and subject to quarterly audits to ensure the reserve's integrity. BUSD is often used for trading, payments, transfers, and as a store of value.

• FTX (FTT) was the main token for the FTX exchange before it crashed and burned. It was used as a form of payment with the added benefit of reducing trading fees and offering users several other utilities on the platform.

• Crypto.com (CRO) is Crypto.com’s native token created to facilitate transactions within its blockchain and financial ecosystem.

A meme coin is a cryptocurrency that’s inspired by some of the world’s most popular memes and other internet jokes. These tokens don’t usually have any initial value nor are they backed by an underlying asset or utility, rather, their value is completely dependent upon and derived from the communities surrounding the jokes.

Beyond the community’s sentiment towards the coin, there is no value to be had from owning a meme coin. Especially considering many meme coins have an unlimited supply and no burn mechanism, hence the total circulating number of coins continues to increase, driving down the value even further.

Examples

Dogecoin (DOGE) is by far the most popular meme coin. It was originally created as a joke that ended up gaining some traction when Elon Musk pumped it. It can be used for payment, however, despite its popularity, it remains extremely volatile.

Shiba Inu (SHIB) is a parody of Dogecoin. It can be used to purchase goods and services in the ecosystem but beyond that, it’s pretty much worthless.

SafeMoon (SFM) is technically classified as a meme coin due to its fortified online community called the SafeMoon Army, however, the company actually hopes that its use as a preferred currency for online exchanges becomes a thing.

A cryptocurrency coin operates on its own blockchain, whereas a token makes use of an existing blockchain network. Also, unlike coins, tokens are minted rather than mined during the transaction validation process.

Furthermore, tokens are commonly used to raise capital whereas coins function solely as digital money. That said, coins have specific attributes of traditional currencies including scarcity, security, and store of value.

Tokens don’t necessarily have these attributes since they represent an asset or utility that has its own value, rather than its own pure monetary worth.