Understanding Tokens: Definitions, Classifications, and Trading Guide

What exactly is a Token?

In the Chinese context, Token is usually translated as “token,” “pass,” or “ticket,” and refers to a digital asset built on an existing blockchain network, representing specific rights, certificates, or values that can be traded, transferred, or exchanged.

In the early days of cryptocurrency development, people mainly used Coin to name virtual currencies such as Bitcoin, Litecoin, Dogecoin, etc. It wasn’t until Ethereum emerged and introduced the ERC-20 token standard that the concept of Token became more widespread, allowing any developer to issue their own digital assets on the platform. Today, Ethereum remains the public chain platform with the highest number of Token issuances worldwide.

Simply put, Token is a collective term that covers all non-native tokens on public chains, including DeFi application tokens, Layer-2 network tokens, NFT-related tokens (such as APE, SAND), and other categories.

What types of Tokens are there? What are their uses?

According to the classification standards of international financial regulatory agencies, tokens can be divided into three main types:

Payment Tokens
These tokens aim to facilitate secure, efficient, and low-cost value transfer. The most typical examples are various stablecoins, which are pegged to fiat currencies and used for daily transactions and settlements.

Utility Tokens
Also known as application tokens, they mainly serve as access passes for users to specific blockchain applications or services. Most tokens issued on Ethereum based on the ERC-20 standard belong to this category. Users need to hold these tokens to participate in corresponding DeFi protocols, governance voting, or other application functions.

Asset Tokens
These tokens represent rights to a project or asset. Holding such tokens usually means you become a participant in the project and can enjoy corresponding value benefits, similar to traditional equity concepts. However, it should be noted that in the crypto field, asset tokens typically do not involve actual ownership or dividend rights.

In practical applications, many tokens often possess two or even three of these attributes simultaneously, making precise classification sometimes challenging.

The core difference between Token and Coin

The fundamental difference is that Coins have their own independent blockchain networks, while Tokens do not.

Bitcoin runs on the Bitcoin blockchain, and Ether runs on the Ethereum blockchain — both are native assets of their respective networks. In contrast, Tokens exist within existing blockchain ecosystems, attached to these networks without their own underlying infrastructure. This fundamental distinction determines their different performance in ecological applications, scalability, and functionality.

Is it more advantageous to invest in Tokens or Coins?

This question itself sets up a misconception — Coins and Tokens are not mutually exclusive choices; both play indispensable roles in the entire crypto ecosystem.

If you think of Coins as virtual currencies at the infrastructure layer, Tokens are virtual currencies at the application service layer. The former solves issues at the underlying network level, while the latter develops various applications and services based on it. Lacking either side would create weaknesses in the ecosystem.

Relatively speaking, Tokens offer greater application flexibility and space for value innovation. The value of Coins mainly comes from optimizing the infrastructure; if a project fails, it’s difficult to pivot, and history has many such cases. Tokens, on the other hand, have more diverse application scenarios. Even if one application is not recognized by the market, issuers can develop new service directions, increasing the project’s resilience.

Another notable difference is that Token prices tend to be more volatile than Coins. For example, popular tokens like UNI, SNX, MKR often experience larger price swings than BTC and ETH, especially during bull markets. Greater volatility means more trading opportunities but also higher risks.

How to trade Tokens?

Token trading methods are similar to those of cryptocurrencies, mainly divided into two types:

Spot Trading

Spot trading is the most direct method, where both parties exchange actual assets in full. For example, if UNI is currently priced at $3, the seller transfers 1 UNI to the buyer, and the buyer pays $3 to obtain full ownership of the token.

When conducting spot trading, be especially cautious of fake tokens with the same name. Some teams may copy popular tokens’ names and issue seemingly identical but worthless tokens. To avoid mistaken purchases, always verify the token’s contract address via the official website or blockchain explorer to ensure you are trading genuine assets.

Margin Trading

Besides spot trading, tokens can also be traded via margin trading. This method does not involve actual token holdings, thus avoiding fake token risks.

Margin trading is a non-full amount trading, where only part of the funds are used as margin to control a larger position. For example, using 10x leverage to go long on UNI (priced at $3), you only need to invest $0.3 to establish a 1 UNI trading position. If using derivatives like CFDs or U-based contracts, traders do not actually hold the underlying tokens.

Note that Token’s volatility is usually higher than Coin’s, and liquidation risks increase accordingly. It’s recommended to strictly control position sizes, with leverage ideally not exceeding 10x. Newly issued tokens are especially volatile and should be approached with caution.

Key points for choosing a trading platform

Whether you choose spot trading or margin trading, selecting a secure trading platform regulated by authoritative agencies is the first step. The platform’s compliance, fund security, and trading depth directly impact your trading experience and risk management capabilities, and should not be overlooked.

In summary, Tokens represent an important branch of the crypto ecosystem full of application potential. Understanding their characteristics, classifications, and trading methods is essential for making more rational investment decisions in this rapidly evolving market.