In crypto-jargon, a crypto token is typically used as an alternative term for crypto-asset or cryptocurrency. But it can also mean different things in different contexts.
The most common reference is when “token” is used to describe cryptocurrencies other than Ethereum and Bitcoin. The second most common reference is to describe decentralized finance tokens. Regardless of the type of token you are referring to, the common denominator of crypto tokens is that they can all be traded.
Crypto Tokens: The Basics
There are several different categories of assets called crypto tokens. DeFi tokens, or decentralized finance tokens, are cryptocurrencies native to decentralized platforms and crypto protocols that replicate the conventional financial system. These protocols issue tokens with various uses and functions.
Governance tokens are a subcategory of DeFi tokens. These are special tokens that allow holders to have a say in the direction of a decentralized platform, app or protocol. In this case, token holders can vote on changes, issue complaints and give feedback on the platform.
NFTs, or non-fungible tokens, are among the most popular token categories. Simply put, they represent ownership of a unique digital or real-world asset. NFTs are stored in a blockchain, which makes it very difficult to replicate them. In addition, they are non-fungible because they are completely unique and therefore cannot be replaced by something else.
Last but not least, security tokens are the crypto-equivalent of conventional bonds and stocks. Essentially, security tokens are digital, liquid contracts for fractions of a valuable asset. Therefore, these crypto tokens can be used to sell company shares directly, without the need for a broker or third party. By using security tokens, new owners can record their ownership on the blockchain ledger.
As you can see, the term “crypto token” in web3 has several connotations. It is therefore important to determine which one you are referring to when discussing tokens. As always, do your research before investing in any kind of token.