What Are Tokens?

What Are Tokens?

There are multiple definitions of what a token is in cryptocurrency, but the prevailing definition in the context of Ethereum and other EVM chains is any crypto-asset that lives on top of Ethereum or other blockchains, without having its own dedicated blockchain.

Types of Tokens

Tokens generally have a specific purpose, and can be categorized into different types. The most common types of tokens are:

  • Utility Tokens: Utility tokens are tokens that serve a certain role in an ecosystem. For example, the Brave Browser has a utility token called BAT, which is used to pay for certain services within the Brave exosystem.
  • Governance Tokens: Governance tokens are tokens that are used to vote on proposals within an ecosystem. For example, the ENS token is used to vote on proposals that affect the Ethereum Name Service.
  • Stablecoins: Stablecoins are tokens that are pegged to a certain value, usually the US Dollar. For example, the DAI stablecoin is pegged to the US Dollar through a system of smart contracts.
  • Memecoins: Memecoins are tokens that are created for fun, and usually have no real value. For example, SHIB is a memecoin that was created to be the "Dogecoin Killer".
  • Non-Fungible Tokens: Non-Fungible Tokens (NFTs) are unique tokens that can be bought and sold. For example, Bored Ape Yacht Club is a collection of 10,000 unique NFTs that can be bought and sold.

While NFTs are technically tokens, they are very different from their fungible counterpart. So it can be useful to make the distinction between fungible tokens and NFTs. On Revoke.cash, we use the term token to refer only to fungible tokens, and the term NFT to refer to non-fungible tokens.

Token Standards

All popular Ethereum tokens adhere to a certain token standard. A token standard is a set of rules that defines how a token should be implemented. By using these standards, tokens can be easily integrated into applications such as wallets, DeFi applications, and Revoke.cash. The prevalent token standard for fungible tokens is ERC20. The prevalent token standard for NFTs is ERC721.

While these are the base-level token standards, there are newer standards that build on top of these primitive standards. For example, EIP2612 extends ERC20 with the functionality to grant token approvals with a gasless signature. This can save gas fees when interacting with DeFi applications.

Token Exchanges

The most popular way to buy and sell tokens is through a decentralized exchange (DEX). A DEX is a smart contract that allows users to trade tokens without the need for a centralized intermediary. The most popular DEX is Uniswap, which allows users to trade tokens directly from their wallet. Several of the more popular tokens are also available on centralized exchanges such as Coinbase and Binance.

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