Deep Understanding of Tokens: The Fundamental Differences from Coins and Investment Guide

Why is it Important to Distinguish Between Token and Coin?

In the early cryptocurrency ecosystem, major cryptocurrencies like Bitcoin, Litecoin, and Dogecoin were primarily named as Coins, with a simple concept. However, after the emergence of Ethereum, the boundary between Tokens and Coins has become increasingly blurred. Both are translated as “tokens” or “cryptocurrencies” in Chinese, making it difficult for many investors to differentiate. This article will analyze the fundamental differences between these two concepts, the classification system of Tokens, and corresponding investment strategies.

Definition and Development Context of Tokens

A Token is a digital asset built on an existing blockchain, representing specific rights, certificates, or value carriers, which can be traded, transferred, and exchanged on the corresponding chain.

The rise of Tokens is closely related to Ethereum. In 2015, Ethereum introduced the ERC-20 standard, which greatly simplified the process of issuing tokens, allowing any developer to create their own Token on the platform. This innovation significantly lowered the entry barrier, leading to an explosive growth in the number of Tokens. To date, Ethereum remains the blockchain with the largest Token issuance volume.

Unlike Coins, Tokens do not have an independent blockchain; instead, they are parasitic on other public chains. Simply put, non-blockchain tokens are collectively called Tokens, including DeFi application tokens, Layer-2 ecosystem tokens, NFT tokens (such as APE, SAND), and others.

The Three Main Categories and Functional Positioning of Tokens

According to the classification standards of the Swiss Financial Market Supervisory Authority (FINMA), Tokens are mainly divided into three categories:

Payment Tokens

Their primary function is to facilitate secure, efficient, and low-cost value transfer. Stablecoins are typical representatives. These tokens have relatively stable value and are suitable for daily payments and settlements.

Utility Tokens

Designed to provide access rights and usage permissions within an application ecosystem. Most ERC-20 tokens on Ethereum belong to this category. Holders can use them to access specific applications or services.

Asset Tokens

Represent ownership rights to a project or asset. Holders can enjoy value appreciation as the project grows, similar to stocks. It is important to note that asset tokens in the crypto space usually do not carry company ownership or dividend rights.

In practice, a single Token often possesses multiple of these attributes simultaneously. Purely single-type tokens are relatively rare.

The Core Difference Between Token and Coin

The fundamental difference is: Coins have their own blockchain (e.g., Bitcoin runs on the Bitcoin chain, Ether runs on Ethereum), while Tokens are built on existing blockchains. This difference often results in Tokens having less application breadth within ecosystems compared to Coins, and some Tokens cannot even be independently used to build applications.

Advantages and Disadvantages of Investing in Tokens and Coins

From an ecosystem role perspective, Coins solve infrastructure problems, while Tokens provide diverse applications or services on top of that infrastructure. Both are complementary and indispensable.

The advantage of Tokens lies in their greater application flexibility. The value of Coins is limited to infrastructure optimization; if they fail, there is often no way out (e.g., Quantum Chain QTUM, BTM have faded from the market). In contrast, Tokens can be flexibly redirected across different applications. For example, after MakerDAO launched RWA business, it opened new directions outside the original DeFi framework.

Tokens tend to be more volatile than Coins. Tokens like UNI, SNX, MKR often experience price swings exceeding those of BTC and ETH, especially during bull markets. This creates more opportunities for short-term traders but also involves higher risks.

Two Ways to Invest in Tokens

Spot Trading

Spot trading involves actual assets with full payment. For example, if UNI is currently priced at $3, the buyer pays $3 to acquire ownership of 1 UNI.

Be especially cautious of scam coins: After a well-known token becomes popular, malicious teams often issue counterfeit Tokens with the same name but no value, attempting to confuse investors. The way to prevent this is to verify the token contract address via official websites or blockchain explorers to ensure you are purchasing tokens issued by the genuine project.

Margin Trading

Margin trading is a non-full payment method where investors only need to pay a portion of the funds as margin to control a larger position. For example, using 10x leverage to go long on UNI: if the price is $3, the investor only needs to pay $0.3 to hold a position of 1 UNI.

Margin trading usually does not involve actual token delivery (such as CFDs or USDT-margined contracts), thus avoiding scam coins. However, leverage amplifies both gains and losses.

Risk Control Suggestions for Token Trading

Given the high volatility of Tokens, investors should pay attention to the following points:

1. Control position size – Avoid over-concentrating investments in a single Token
2. Use leverage prudently – It is recommended not to exceed 10x leverage; be especially cautious with emerging tokens
3. Set stop-loss and take-profit points – Plan risk exit points and profit realization in advance
4. Choose legitimate platforms – Only operate on trading venues with proper compliance credentials and regulatory oversight

Regardless of whether you use spot or margin trading, a safe and compliant trading environment is the foundation of successful investment.

Summary

Although Tokens and Coins are both crypto assets, they differ fundamentally in blockchain affiliation, functional positioning, and application breadth. Due to their flexible ecosystem and relatively higher volatility, Tokens offer investors different opportunities and challenges. Whether choosing a spot or margin approach, understanding the intrinsic properties of Tokens, carefully assessing risks, and selecting secure platforms are essential basics.