A Brief Discussion on Cryptocurrency Assets: The Fundamental Differences Between Tokens and Coins and Trading Strategies

Preface: The Root Cause of Noun Confusion

In the early days of cryptocurrency development, the main circulating native coins were Bitcoin, Litecoin, Dogecoin, and others. As the blockchain ecosystem evolved, especially with the rise of Ethereum, the concept of tokens gradually entered investors’ view. However, because the Chinese translation is uniformly “代幣” or “cryptocurrency,” many participants still feel confused about the distinction between the two. This article will systematically explore the nature, classification, and differences between tokens and traditional coins.

Definition and Operating Principles of Tokens

Tokens are essentially digital assets issued on existing blockchains, representing specific rights, certificates, or value carriers, which can be traded, transferred, and exchanged on the corresponding blockchain network.

Unlike standalone coins, tokens do not have their own dedicated public chain. The ERC-20 standard launched by Ethereum in 2015 became a watershed for token issuance, enabling any developer to create their own tokens on this basis. To date, Ethereum remains the largest public chain platform for token issuance worldwide.

Broadly speaking, tokens refer to all assets built on other people’s blockchains, including DeFi protocol tokens, Layer-2 ecosystem tokens, NFT-related tokens (such as APE, SAND), and others.

The Three Major Classifications of Tokens

According to the framework of international financial regulatory agencies, tokens can be roughly divided into the following three categories:

Payment Tokens

The core goal of these tokens is to achieve secure, efficient, and low-cost value transfer. Stablecoins are typical representatives of this category. These tokens are usually pegged to fiat currencies or commodities, reducing volatility.

Utility Tokens

Utility tokens serve as access passes to specific application ecosystems, granting holders the right to use the ecosystem’s services. Most ERC-20 standard tokens in the Ethereum ecosystem fall into this category, such as Uniswap (UNI), MakerDAO, and other governance tokens.

Asset Tokens

These tokens represent ownership rights to a project or asset pool. Holders can enjoy corresponding revenue distributions or appreciation of rights, structurally similar to traditional stocks. It is worth noting that in the crypto field, token holders usually do not have legal ownership of the project and often lack dividend rights; their rights are more reflected in market value recognition.

Fusion Phenomena in Practical Applications

Although the above three categories seem clear in theory, in reality, a single token often possesses multiple attributes. For example, a DeFi token can be used for governance voting (utility), for payment transactions (payment), and may even involve economic rights from liquidity mining (asset). Therefore, strict tripartite classification is difficult to fully apply in practice.

The Fundamental Difference Between Tokens and Coins

Blockchain Infrastructure Differences

The most core distinction lies in the independence of the underlying architecture.

Coins (such as Bitcoin, Ether, Solana, etc.) have their own independent blockchain networks. Bitcoin operates on the Bitcoin blockchain, Ether on the Ethereum network; they are native assets of their respective networks, whose security and operation are fully supported by the network.

Tokens, on the other hand, are entirely dependent on existing blockchain ecosystems. This architectural difference has significant consequences—the ecological applications of tokens are usually limited by the capabilities of the parent chain, and they often cannot develop applications independently, relying instead on the infrastructure of the parent chain.

Functionality and Issuance Methods Comparison

Investment Choices: Tokens vs Coins

Investing in tokens or coins has no absolute answer; each has its characteristics and complements the other.

Role and Limitations of Coins

Coins mainly solve the infrastructure problems of blockchain, building the underlying of the entire ecosystem. It is more appropriate to regard them as “infrastructure assets.” However, this also limits their innovation space—if the design of the underlying chain has major flaws or if there are mistakes in the technical route, it is often difficult to correct, and projects may face elimination. For example, some former Layer-1 public chains have gradually declined.

Advantages and Risks of Tokens

In contrast, tokens are used to build application layer services and have greater flexibility. On the same blockchain foundation, multiple different applications or services can be developed, and failed applications can be iterated or replaced. For example, a DeFi protocol can initially focus on lending, then later launch derivatives or real-world asset (RWA) businesses.

Volatility and Opportunities

Token prices are usually more volatile than mainstream coins. Tokens like UNI, SNX, MKR often experience price swings exceeding BTC and ETH during bull and bear markets. Especially in bull markets, this provides more opportunities for short-term traders. However, high volatility also means greater risk exposure, so careful risk management is necessary.

Token Trading Methods

The investment methods for tokens are basically the same as for coins, mainly divided into two categories:

Spot Trading

Spot trading involves the full purchase and sale of actual assets. For example, if UNI is currently priced at $3, paying $3 will give the buyer full ownership of 1 UNI, with the physical asset rights fully transferred.

Risk Prevention Tips

Be cautious of fraud risks from tokens with the same name. There are maliciously copied counterfeit tokens that mimic well-known tokens, which are often worthless or have never been listed on exchanges. Investors must verify the contract address on official websites or blockchain explorers to ensure they are purchasing the correct asset.

Margin Trading

Besides spot trading, tokens can also be traded via margin trading. This type of trading mostly does not involve actual token transfer, thus avoiding the risks of counterfeit tokens mentioned above.

Margin trading allows investors to use leverage. For example, using 10x leverage to go long on UNI, requiring only $0.3 to control a position worth $3. A contract for difference (CFD) and U-based futures are typical examples; investors do not actually hold the native tokens.

Leverage Risk Management

Due to the high volatility of tokens, controlling leverage multiples is especially important. It is recommended not to exceed 10x leverage. Major coins like BTC rarely fluctuate more than 10% in a single day, but emerging tokens can have much larger daily swings, and the risk of liquidation should not be underestimated.

Choosing a Trading Platform

Whether for spot or margin trading, selecting a safe, regulated trading platform is the top priority. An ideal platform should have the following features:

• Hold proper licenses or permits from legitimate financial authorities
• Implement comprehensive fund segregation and protection mechanisms
• Provide transparent fee structures and risk warnings
• Have a stable system architecture and customer support

Before investing in tokens, take the time to research the platform’s background and understand its regulatory status—this is the first line of defense to protect your assets.

Summary

Although tokens and coins are both crypto assets, their architecture, functions, and risk characteristics differ significantly. Coins provide the blockchain infrastructure, while tokens build the application ecosystem; both serve their respective roles. Token investment offers higher volatility opportunities but also requires more cautious risk management. Regardless of which asset class you choose, a secure trading environment and sufficient knowledge are essential foundations for successful investing.