Token

A token is a digital asset created and managed by a smart contract on an existing blockchain, rather than by its own dedicated network. Tokens rely on the host chain for security and settlement.

How it works

A token is defined by a smart contract that tracks balances and transfers according to a shared standard, such as Ethereum’s ERC-20 for interchangeable tokens. This is the key distinction from a coin like Bitcoin or ether, which is native to its own blockchain. Because issuing a token only requires deploying a contract, thousands can exist on a single platform.

Why it matters

Tokens power most of the activity in DeFi, governance and NFTs, and they let projects launch an asset without building a blockchain from scratch. The flip side is that creating one is easy, so the quality and purpose of tokens varies enormously — which is what tokenomics analysis tries to assess.

Example

A governance token lets holders vote on a protocol’s decisions; a stablecoin is a token engineered to track a currency.