What exactly are tokens? How do they differ from coins? A complete guide to investing in tokens

From Coin to Token: The Evolution of the Cryptocurrency World

In the early days of blockchain, digital assets were primarily named as Coins—Bitcoin, Litecoin, Dogecoin, etc. But with the advent of Ethereum, the situation changed fundamentally. Ethereum introduced the ERC-20 standard, allowing any developer to issue digital assets on its network, which we now call Tokens.

Today, Coins and Tokens are often used interchangeably and both translated as “tokens” or “cryptocurrencies” in Chinese, causing many investors to struggle to distinguish between them. This article will delve into the definition, features, and core differences between Tokens and Coins to help you better understand these two types of assets.

What is a Token? An In-Depth Understanding of This Digital Asset

A Token is a digital asset representing specific rights, certificates, or value that can be freely traded, transferred, or exchanged on its corresponding blockchain. The key point is: Tokens do not exist independently but are issued based on other existing public chains.

The ERC-20 standard launched by Ethereum in 2015 made Token issuance extremely simple. To this day, Ethereum remains the blockchain with the largest Token issuance volume worldwide. Besides Ethereum, there are also many Tokens circulating on Layer-2 solutions like Polygon, Solana, and emerging public chains.

In simple terms, a Token is a collective term, not referring to a specific token. Any crypto asset that does not have its own independent blockchain can be classified as a Token—including DeFi tokens, Layer-2 native coins, NFT-related tokens (such as APE, SAND), and more.

The Three Main Categories of Tokens and Their Practical Applications

According to the classification standards of the Swiss Financial Market Supervisory Authority (FINMA), Tokens can be divided into three types:

Payment Tokens (Payment Tokens) These Tokens aim to facilitate convenient, secure, and low-cost transaction settlement functions. Stablecoins are a typical example, used to reduce the volatility of crypto assets.

Utility Tokens (Utility Tokens) Utility Tokens serve as “passports” within application ecosystems, allowing holders to access specific services. Most ERC-20 tokens on Ethereum belong to this category.

Asset Tokens (Asset Tokens) Asset Tokens represent ownership or profit rights of a project or asset, similar to traditional stocks, but it’s important to note that in the crypto space, they usually do not involve company ownership or dividend rights.

In practice, many Tokens often possess two or even three of these attributes simultaneously, making them difficult to categorize strictly.

The Fundamental Difference Between Tokens and Coins

The core difference lies in the blockchain they belong to:

Coins have their own independent blockchain. Bitcoin operates on the Bitcoin blockchain, Ether on the Ethereum blockchain; they are the native assets of these networks, carrying the fundamental functions of the entire ecosystem.

Tokens do not have their own blockchain; they are built on existing ecosystems, relying on the security and performance of other public chains. This results in Tokens being less flexible in application compared to Coins, and sometimes unable to support complex applications independently.

Investing in Tokens vs. Investing in Coins: Each Has Its Advantages

Many people are torn between investing in Tokens or Coins; in reality, they complement each other.

Think of Coins as the “infrastructure,” while Tokens are the “application layer.” The former solves underlying technical issues, while the latter develops various applications and services on top. From a development perspective, Tokens have greater scalability and innovation potential.

Advantages of Tokens include more flexible business models—one protocol can launch multiple Token products, and even if one application fails, it can quickly pivot. For example, MakerDAO initially focused on stablecoins and later expanded into RWA (Real-World Assets) business. This adaptability is hard for Coins to achieve.

However, Tokens also carry higher risks. Since applications depend on the security of the underlying chain, if the base layer encounters issues, the entire ecosystem may collapse. Additionally, Tokens tend to be more volatile than Coins—daily fluctuations of UNI, SNX, MKR often exceed those of BTC and ETH. This presents opportunities for short-term traders but can be traps for investors with low risk tolerance.

How to Invest in Tokens? Two Methods Explained

Method 1: Spot Trading

Spot trading is the most straightforward approach—buy Tokens at market price to gain actual ownership of the asset. For example, if UNI is priced at $3, buying 1 UNI immediately grants you ownership of that asset, which you can transfer or resell at any time.

Spot trading has relatively manageable risks, but beware of fake tokens with the same name. If two teams issue tokens with the same name, always verify the token contract address via the official website or blockchain explorer to avoid purchasing counterfeit tokens that cannot be traded.

Method 2: Margin Trading

Margin trading (or leverage trading) allows you to control larger positions with less capital. For example, using 10x leverage to trade UNI means you only need $0.3 to open a position equivalent to $3.

This type of trading usually does not involve actual token transfer but is conducted through Contracts for Difference (CFD) or U-based contracts. The advantages are high capital efficiency and quick position opening, but the risk of liquidation is significant.

Key reminder for Token investors: Token volatility far exceeds that of Coins, especially for emerging tokens. If engaging in leveraged trading, strictly control position size and leverage ratio—recommend not exceeding 5-10x—to prevent daily fluctuations from triggering stop-loss orders.

Choosing a Trading Platform: Fundamental but Crucial

Regardless of the investment method, selecting a legitimate, secure, and regulated trading platform is the top priority. Platform security affects asset safety, liquidity determines trading costs, and fee levels impact returns. Before starting Token investments, conduct thorough research and comparison of platforms.

In short, the Token market is full of opportunities but also hidden risks. Master basic knowledge, choose the right platform, and control risk exposure—these are the correct strategies for long-term profit.