What is a token? An in-depth understanding of the fundamental differences between tokens and public chain coins

When it comes to cryptocurrency investment, many people tend to confuse Tokens and Coins. In fact, these two concepts have essential differences, and understanding their distinctions is crucial for making informed investment decisions.

Token vs. Coin: Fundamental Differences in Nature

Coins have their own independent blockchain ecosystem, for example, Bitcoin (BTC) operates on the Bitcoin blockchain, while Ether (ETH) is issued on Ethereum. They are the native assets of their respective networks, carrying the core functions of the entire blockchain.

So, what are Tokens? They do not have their own blockchain; instead, they are digital assets built on existing blockchains. Since Ethereum introduced the ERC-20 standard in 2015, any developer can issue Tokens on its platform. Therefore, Tokens can be understood as application-layer tokens, whereas Coins are the underlying infrastructure-layer currencies.

Diverse Classifications of Tokens

Based on their functional attributes, Tokens are mainly divided into three categories:

Payment Tokens are the easiest to understand, primarily aimed at enabling secure, efficient, and low-cost transactions. Stablecoins are a typical example, used for payments and settlements.

Utility Tokens grant holders access to specific applications, such as ERC-20 tokens on Ethereum. Examples include LINK, UNI, and COMP. Holders use these Tokens to access particular protocols or services.

Asset-backed Tokens represent claims on the rights to a project, similar to stocks. Holding tokens like MKR or AAVE signifies participation in the project, but note that these tokens usually do not include company ownership or dividend rights.

In practice, a single Token often exhibits two or even three of these attributes simultaneously, making classification somewhat complex.

Main Investment Differences

At the blockchain layer, Coins are in Layer-1, while Tokens are more commonly found in Layer-2 and Layer-3. This means Coins tend to be more stable, but Tokens have broader application potential.

Why Are Token Investments More Attractive?

Volatility and Opportunities are the main advantages of Tokens over Coins. The price fluctuations of UNI, SNX, MKR are often greater than those of BTC and ETH, especially during market uptrends. This provides more trading opportunities for short-term investors, though it also entails higher risks.

Broader Application Scope is another key feature. Tokens are attached to existing blockchain ecosystems, resulting in lower development costs and faster innovation. If a certain application is not recognized by the market, project teams can easily launch new products, just like MakerDAO’s flexible launch of RWA services. Conversely, if the underlying infrastructure of a Coin fails, there are usually no alternatives.

What Are Tokens: Two Main Trading Methods

Spot Trading: Holding Tokens Directly

Spot trading is the most basic form of participation—you buy and hold real Tokens. For example, if the current price of UNI is $3, purchasing it immediately grants you ownership of that Token.

Be cautious of fake tokens with the same name. If Team A develops a valuable ABC token, Team B might quickly issue a cheap counterfeit with the same name. If you accidentally buy it, you may find it impossible to sell later. The solution is to verify the token contract address via blockchain explorers or official websites.

Margin Trading: Amplify Gains and Risks with Leverage

Margin trading does not require paying the full amount. For example, trading UNI with 10x leverage means you only need $0.3 to control a 1 UNI position (assuming a $3 price). Contracts like perpetual swaps or USDT-margined contracts often do not involve actual token holdings.

Risk management is critical. Daily volatility of Tokens often exceeds 10%, and emerging tokens can be even more volatile. It is recommended to keep leverage below 10x; otherwise, liquidation risk becomes very high. Choosing a reputable, regulated trading platform is the first step for participating in Token investments.

Practical Guide: How to Start Trading Tokens

The trading process is simple and standardized. Taking UNI as an example, the steps on a legitimate platform are usually:

Step 1 - Log into your trading account; if you don’t have one, complete the registration process first.

Step 2 - Enter the token name (e.g., UNI) in the search box and select Uniswap from the results.

Step 3 - Set your trading parameters: buy or sell, quantity, leverage, and stop-loss/take-profit levels, then confirm the order.

The entire process takes less than three minutes, allowing you to quickly seize market opportunities.

Summary: The simplest answer to “What is a Token?” is—an application-layer asset built on an existing blockchain. The fundamental difference between Tokens and Coins lies in whether they have their own independent blockchain. As an investor, understanding these differences helps you make smarter asset allocation decisions.