How to distinguish between Token and Coin? A must-know guide for seasoned investors on differentiating crypto assets

When entering the crypto asset market, many beginners often confuse the concepts of Token and Coin. In fact, with the explosion of the Ethereum ecosystem, these two terms frequently appear interchangeably in the market, leading investors to confusion. This article will deeply analyze the fundamental differences between Token and Coin to help you clarify your thinking quickly and make more accurate investment decisions.

Core Definition of Token: Not Just a Token, But a Rights Certificate

A Token is essentially a digital asset representing specific rights, certificates, or usage rights, which can be traded, transferred, and exchanged within its blockchain network. Unlike traditional currencies or assets, Tokens rely on an existing public chain ecosystem rather than operating on an independent blockchain.

The ERC-20 standard launched by Ethereum in 2015 is a milestone for Token issuance, allowing any developer to create their own Token on Ethereum. This also explains why Ethereum remains the largest public chain for Token issuance to date. In other words, Token is a broad concept encompassing all non-public chain tokens, including DeFi protocol tokens (such as UNI, AAVE, LINK), Layer-2 network tokens (MATIC), NFT-related tokens (SAND, APE), and more.

Three Major Categories of Tokens: Payment, Functionality, and Asset Dimensions

According to the classification framework of the Swiss Financial Market Supervisory Authority (FINMA), Tokens can be divided into three main types based on their functions:

Payment Tokens primarily serve as a means of payment, focusing on security, efficiency, and low cost. Stablecoins are typical representatives, pegged to fiat currencies, with minimal volatility, suitable for daily transactions and settlements.

Utility Tokens provide access passes to applications, mainly based on ERC-20 tokens on Ethereum. These Tokens are often tied to specific application rights, such as UNI for Uniswap, AAVE for Aave, etc. Holders can participate in governance or access specific services through these Tokens.

Asset Tokens represent a portion of ownership of project assets, similar to traditional stocks. It’s important to note that holding Asset Tokens in the crypto space does not usually mean ownership of the project company or dividend rights; rather, it is more of an investment in the project’s value.

It should be pointed out that, in theoretical classification, Tokens have their respective attributes, but in practical applications, a single Token often exhibits two or even three of these characteristics simultaneously, with boundaries not always clear.

Token vs Coin: The Fundamental Difference Lies in Blockchain Ownership

Coins have their own independent blockchain, such as Bitcoin (BTC) running on the Bitcoin blockchain, and Ether (ETH) running on the Ethereum blockchain. They are the native assets and foundational tokens of these networks.

Tokens are built on existing blockchains and do not possess independent blockchain architecture. This limits the scalability of their application ecosystem, and in some cases, they cannot even independently build complete applications.

A deeper comparison of their core differences:

This distinction determines the roles of these assets in the market—Coins are at the infrastructure layer, while Tokens are at the application layer.

Token vs Coin Investment Choices: No Absolute Good or Bad, Depends on Risk Preference

From an investment perspective, Coins and Tokens each have their advantages and complement each other.

The value of Coins mainly revolves around infrastructure innovation, such as Bitcoin’s security consensus and Ethereum’s smart contract capabilities. If a Coin project’s direction is wrong, it’s usually difficult to adjust, and the success rate of such projects is relatively fixed.

Tokens have more diverse application potential and are easier to iterate, because Token projects can quickly launch new applications or adjust product directions based on existing infrastructure. For example, MakerDAO can launch RWA (Real-World Assets) business without changing the underlying blockchain.

In terms of volatility, Token risks and returns are generally higher than Coins. For instance, Tokens like UNI, SNX, MKR often see larger gains in bull markets compared to BTC and ETH, but also experience sharper declines. This creates more opportunities for short-term traders but also entails higher liquidation risks.

In short, conservative investors are better suited to allocate funds to Coins for stable returns, while aggressive investors can capture higher gains through Tokens but must manage risks carefully.

The Difference Between Bank Tokens and Public Chain Tokens

It’s worth noting that bank tokens (such as digital rights certificates issued by banks) are fundamentally different from public chain Tokens. Bank tokens are usually issued by financial institutions, characterized by centralization, mainly used for internal settlement or customer rights verification; whereas blockchain Tokens are fully decentralized, and anyone can trade and transfer them. The regulatory rules, liquidity, and trading methods of the two are vastly different, so investors should not confuse them.

How to Trade Tokens: Two Methods – Spot and Margin Trading

Method 1: Spot Trading

Spot trading is the most direct investment method—buying and holding Tokens directly, such as purchasing 1 UNI at $3 and owning its rights. This approach is simple and relatively low risk.

Key Reminder: Be cautious of fake tokens with the same name. Some teams issue counterfeit tokens with the same name as well-known Tokens but with no value. Once purchased, they cannot be traded on mainstream platforms. Therefore, always verify the contract address through official channels or blockchain explorers before buying to ensure you are purchasing authentic Tokens.

Method 2: Margin Trading

Margin trading (also called leverage trading) allows investors to control larger positions with a small amount of capital. For example, using 10x leverage to trade UNI, you only need $0.3 to control a position of 1 UNI (assuming UNI price is $3).

In margin trading, investors usually do not hold the actual Token but trade through contracts like CFDs or U-Token contracts. The main risk comes from leverage amplification. Since Token volatility is much higher than Coins, sudden price swings can trigger liquidation easily. Therefore, it’s recommended to keep leverage within 5x and never exceed 10x.

Practical Tips for Token Trading

Whether choosing spot or margin trading, the following points are crucial:

First, choose a secure and regulated trading platform. This is the first line of defense for Token investment and must not be overlooked.

Second, verify the contract address during spot trading to avoid fake or phishing Tokens.

Third, in margin trading, strictly control risks—set reasonable stop-loss and take-profit levels, avoid excessive leverage, and regularly review your positions.

Fourth, be especially cautious with newly issued Tokens. These Tokens often have poor liquidity, high volatility, and unknown risks, making high leverage unsuitable.

Fifth, regularly monitor your holdings’ risks. The Token market changes rapidly, requiring timely adjustments to your strategy.

Mastering the differences between Token and Coin, and understanding the risk and return characteristics of different trading methods, is fundamental to becoming a rational investor. Whether you are a long-term holder or a short-term trader, always choose appropriate asset allocation and trading strategies based on your risk tolerance.