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Analyzing Market
Glossary

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.

Token: Frequently Asked Questions

What is the difference between a token and a coin?
A coin like Bitcoin or ether is native to its own dedicated blockchain, which provides its security. A token is created and managed by a smart contract on an existing chain, such as an ERC-20 token on Ethereum, and relies on that host chain for security and settlement rather than running its own network.
Why are there so many different tokens?
Because issuing a token only requires deploying a smart contract, thousands can exist on a single platform without anyone building a new blockchain. This makes it easy for projects to launch an asset quickly. The flip side is that quality and purpose vary enormously, which is what tokenomics analysis tries to assess.
What can tokens be used for?
Tokens power much of the activity in DeFi, governance, and NFTs. They can serve many roles depending on their design. For example, a governance token lets holders vote on a protocol's decisions, while a stablecoin is a token engineered to track a currency. The token standard, like ERC-20, defines how balances and transfers work.
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