What Is a Token?
A token is a digital asset created on an existing blockchain using smart contracts. Unlike coins (BTC, ETH, SOL) which have their own native blockchain, tokens are built on top of other chains. The most common standard is ERC-20 on Ethereum, but tokens exist on every smart contract platform.
How Tokens Work
Tokens are created by deploying a smart contract that defines the token's properties: name, symbol, supply, and transfer rules. Anyone can create a token — the barrier to entry is essentially zero. Token types include:
- Utility tokens — Access to a product or service
- Governance tokens — Voting rights in a protocol
- Security tokens — Represent ownership of real-world assets
- Stablecoins — Pegged to fiat currencies
Why It Matters for Traders
Understanding the difference between tokens and coins is essential for risk assessment. Token value depends entirely on the issuing protocol's success and tokenomics design. Analyzing token supply schedules, vesting periods, and governance mechanics helps traders identify overvalued vs undervalued tokens and anticipate sell pressure from unlock events.