Deepening Understanding of Tokens and Coins: The Fundamental Differences and Investment Logic of Two Types of Crypto Assets

Why Are Token and Coin Often Confused?

In the early days of cryptocurrency, projects like Bitcoin, Litecoin, and Dogecoin all used the naming convention “Coin,” and there was no confusion. However, after the emergence of Ethereum, the concept of Token became widely used, and in Chinese, it was translated as “代幣” or “加密貨幣,” leading many investors to find it difficult to distinguish between them. To navigate the crypto space more effectively, it is essential to understand the core differences between these two concepts.

What Exactly Is a Token?

A Token is a digital asset credential issued on an existing blockchain, commonly translated as pass, token, or digital token in Chinese, representing specific rights, certificates, or digital assets. It can be traded, transferred, and exchanged on its respective blockchain.

Since Ethereum launched the ERC-20 standard in 2015, anyone can issue their own Token on Ethereum. This innovation has revolutionized the crypto ecosystem, making Tokens the standard asset form for DeFi, Layer-2, NFT, and other application layers. Currently, Ethereum remains the blockchain with the largest Token issuance volume.

It is important to note that “Token” is a general term and not the name of a specific token. In simple terms, any non-native token on a public chain can be called a Token, including AAVE, UNI, LINK, MATIC, SAND, COMP, etc.

What Are the Categories of Tokens? What Are Their Functions?

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

Payment Tokens: Primarily used for secure, efficient, and low-cost payments. Stablecoins are typical representatives.

Utility Tokens: Provide access rights and usage credentials for various applications. Most ERC-20 tokens on Ethereum belong to this category.

Asset-backed Tokens: Holders have project rights and asset income rights, similar to stocks. However, investors in the crypto space generally do not own company ownership or dividend rights.

Theoretically, these three categories are clear, but in practice, it is much more complex—one Token often exhibits two or even three attributes simultaneously, making simple classification difficult.

What Is the Fundamental Difference Between Token and Coin?

Coins have their own independent blockchain networks—Bitcoin runs on the Bitcoin blockchain, Ethereum on the Ethereum chain, and they are the native assets of these networks.

Tokens do not have their own blockchain; instead, they are built on existing blockchain ecosystems. This results in limited ecosystem applications for Tokens, and they often cannot independently develop applications.

Main differences summarized in the comparison table:

Is Investing in Tokens More Profitable Than Investing in Coins?

They are not mutually exclusive but complementary—Coins are like the infrastructure of public chains, while Tokens are more like application-layer tools. Coins solve infrastructure issues, and Tokens provide specific services on top of that infrastructure; both are indispensable.

From an investment perspective, each asset type has its characteristics:

Advantages of Tokens: Broader application scope, lower implementation costs, greater innovation potential. If a certain application is unpopular in the market, project teams can quickly adjust or launch new products, offering much more flexibility than Coins. For example, MakerDAO can launch new RWA businesses at any time.

Disadvantages of Coins: Relatively limited in value, mainly focused on infrastructure. If the direction is wrong, it is often difficult to reverse, as seen with long-term struggles of projects like Quantum Chain (QTUM) and Bytom (BTM).

Risk Considerations: Tokens generally exhibit higher volatility than Coins. Tokens like UNI, SNX, MKR often have price swings exceeding BTC and ETH, especially during bull markets, which creates more opportunities for short-term traders but also entails greater risks.

How to Trade Tokens? Detailed Explanation of Two Main Methods

Spot Trading of Tokens

Spot trading involves actual asset transactions at full value. For example, if UNI is priced at $3, purchasing it for $3 grants full ownership of 1 UNI token.

Risk Reminder: Beware of fake tokens with the same name. Many projects issue well-known Tokens, and other teams may immediately release counterfeit tokens with the same name but no value. If investors accidentally buy these, they may face difficulties selling. The solution is to always verify the contract address via the official website or blockchain explorer to ensure you are purchasing the genuine project.

Margin Trading of Tokens

Margin trading is a leveraged trading method where traders only need to pay part of the funds as margin, without paying the full amount to buy tokens.

For example, using 10x leverage to trade UNI, which normally costs $3, requires only $0.3 to control a position of 1 UNI. It should be noted that most margin trading does not involve actual holding of tokens, thus avoiding fake token risks.

Risk Management Advice: Since Token volatility is much higher than Coins—especially for newly issued tokens, daily fluctuations of over 10% are common—investors must strictly control position sizes and leverage. It is recommended not to exceed 10x leverage, as the risk of liquidation increases significantly.

Overview of Token Trading Process

Whether spot or margin trading, the basic process is similar:

1. Register an account on a reputable trading platform
2. Complete identity verification and fund deposit
3. Search for the target Token (e.g., UNI)
4. Fill in trading parameters (direction, amount, stop-loss, take-profit, etc.)
5. Submit the order and complete the trade

The Most Important Point

Choosing a safe, regulated trading platform is the first step in investing in Tokens. It directly relates to the security of your funds and trading experience, so it should not be taken lightly.