Understanding Tokens and Coins: The Two Main Categories of Crypto Assets

In the world of cryptocurrencies, Token and Coin are often used interchangeably, but their fundamental differences are significant. To truly understand crypto asset investment, it’s essential to clarify these two concepts.

Coin vs Token: What is the Most Fundamental Difference?

Coins (硬幣) have their own independent blockchain ecosystems. Bitcoin operates on the Bitcoin blockchain, and Ether runs on the Ethereum blockchain. They are the native assets of these networks, serving as the backbone of Layer-1 infrastructure.

Tokens, on the other hand, are assets that exist on existing blockchains. Tokens do not have their own blockchain but are issued on other public chains (mainly Ethereum). Since the launch of the ERC-20 standard in 2015, anyone can easily issue tokens on Ethereum, which is why today Ethereum is the platform with the largest token issuance volume.

What is a Token? An Explanation of the Three Main Types

A token is a pass that represents specific rights or digital assets, which can be freely traded, transferred, and exchanged on the blockchain.

According to international financial regulatory standards, tokens are mainly divided into three categories:

1. Payment Tokens (支付型Token) Represented by stablecoins, aiming to achieve secure, efficient, and low-cost payment functions. These tokens are pegged to real assets and are relatively stable.

2. Utility Tokens (功能型Token) Provide access rights to applications; most DeFi tokens fall into this category. Holders can obtain specific services or governance rights through these tokens.

3. Asset-backed Tokens (資產型Token) Represent rights to a project or asset. Holding such tokens means participating in the value sharing of the project, similar to stocks but lacking traditional ownership and dividend rights.

In practical applications, a token often exhibits multiple attributes simultaneously, and the boundaries are not always clear.

What You Must Know Before Investing: Risk Differences Between Token and Coin

Coins and Tokens each have their advantages and disadvantages. The choice of investment depends on your risk tolerance.

Coins are more stable. As foundational assets, their value derives from the utility of their network infrastructure. However, if the infrastructure fails, the investment risk increases sharply.

Tokens have richer application scenarios but are more volatile. The same project can continuously launch new applications or services; for example, MakerDAO’s RWA business demonstrates token flexibility. But this flexibility also brings higher risks—daily volatility of tokens often exceeds that of coins, especially in bear markets, creating opportunities for short-term investors but also risking liquidation.

For example, UNI, SNX, MKR have significantly larger fluctuations than BTC and ETH, especially for emerging tokens with more intense volatility.

Two Ways to Invest in Tokens

Spot Trading: Directly Holding Assets

The most straightforward method is to buy and hold tokens. If the current price of UNI is $3, purchasing 1 UNI means paying $3 and owning that token.

Important Tip: Beware of Fake Coins with the Same Name. When a token’s value rises, scammers may launch fake tokens with the same name but no real value. Always verify that you are purchasing the genuine token through official websites or blockchain explorers by checking the contract address.

Margin Trading: Leveraging to Amplify Gains and Risks

Margin trading allows controlling larger positions with a portion of the capital. For example, with 10x leverage, $0.3 can control a position of 1 UNI. Contract trading takes this further, where traders may not even need to hold the actual token.

Leverage Trading Risk Warning:

• Token volatility is already higher than coins; leverage further amplifies losses
• It is recommended not to exceed 10x leverage
• Emerging tokens carry especially high risks; always set stop-loss orders

Regardless of the method chosen, selecting a secure trading platform regulated by authoritative institutions is crucial—this is the most basic prerequisite for investing in tokens.

Summary: Both Token and Coin Are Indispensable

Think of coins as the infrastructure layer, and tokens as the application layer. The former solves fundamental network issues, while the latter develops various practical applications and services on top. Both complement each other and are essential components of the crypto ecosystem.

Understanding the difference between tokens and coins not only helps in risk management but also enables investors to make more rational asset allocation decisions.