Understand the fundamental difference between Token and Coin in one article, and how to invest in Tokens?

What Exactly Is a Token?

In the early stages of cryptocurrency, the term Coin was primarily used to refer to native assets like Bitcoin, Litecoin, and others. However, with the rise of Ethereum, the crypto market introduced the new concept of Tokens, leading investors to often confuse the two.

Token, translated into Chinese as pass, token, or coin, is essentially a virtual unit representing specific rights, certificates, or digital assets that can be traded, transferred, or exchanged on the corresponding blockchain network.

The biggest feature of Tokens is: they do not have their own independent blockchain. Instead, Tokens are built on existing public blockchains. After Ethereum introduced the ERC-20 standard in 2015, any developer could issue their own Token on it. To this day, Ethereum remains the blockchain platform with the largest issuance of Tokens.

In simple terms, a Token is a broad concept that encompasses all non-native public chain assets, including governance tokens in the DeFi ecosystem, tokens of Layer-2 solutions, and NFT-related tokens (such as APE, SAND, etc.).

What are the three main types of Tokens?

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

Payment Tokens

The core goal of this type of Token is to enable secure, efficient, and low-cost payment functions. The most typical example is stablecoins.

Utility Tokens

Utility Tokens provide access permissions for various applications, mainly existing in the form of ERC-20 tokens on Ethereum. These tokens grant holders usage rights or governance rights within a specific ecosystem.

Asset Tokens

Asset Tokens represent rights to a specific project, with holders becoming participants in that project. However, it is important to note that owning an Asset Token does not mean owning the project or receiving dividends, which is fundamentally different from traditional stocks.

In practical applications, a Token often possesses two or even three of these attributes simultaneously, making strict classification challenging.

Token vs Coin: What is the difference?

The fundamental difference is that Coins have their own blockchain infrastructure.

Bitcoin (BTC) runs on the Bitcoin blockchain, and Ether (ETH) runs on the Ethereum blockchain. They are the native assets of their respective networks, forming the Layer-1 infrastructure.

While Tokens do not have their own blockchain and are built on existing ecosystems. This difference often results in Tokens having less application scope and ecosystem depth compared to Coins, and sometimes they cannot even independently build complete applications.

Token Investment vs Coin Investment: Which is Better?

There is no absolute answer to this question; both are closely related and each has its advantages.

If we consider Coins as the underlying infrastructure-level crypto assets, then Tokens are application-layer crypto assets. Coins mainly solve the technical problems of blockchain infrastructure, while Tokens develop various applications and services on top of that infrastructure to directly meet user needs. Therefore, both are indispensable and together form a complete crypto ecosystem.

Compared to Coins, Tokens have greater application flexibility and are easier to implement. The value of Coins is limited by the innovation space of the infrastructure—if it fails, it’s hard to pivot, such as projects like Quantum Chain (QTUM) or Bytom (BTM). Tokens, on the other hand, can flexibly adjust their application directions based on market feedback, as demonstrated by MakerDAO’s expansion into RWA (Real-World Asset Tokenization).

Another notable feature is that Token volatility is usually higher than that of Coins. For example, UNI, SNX, MKR often experience daily fluctuations exceeding BTC and ETH, especially during bull markets. This creates more trading opportunities for short-term traders but also entails higher risks.

How to Invest in Tokens? Two Main Methods

Method 1: Spot Trading

Spot trading is the most direct investment method, where traders buy actual Tokens with real funds.

For example, if UNI is currently priced at $3, a buyer pays $3 to acquire ownership of 1 UNI. After the transaction, the buyer truly owns the Token, which can be transferred, held, or traded again.

Be aware of the risk: Fake tokens

In some cases, different development teams may issue tokens with the same name. For example, Team A develops a high-value token called XYZ, which becomes well-known, while Team B later issues a token with the same name XYZ but with no real value. Investors who mistakenly buy such tokens may face the risk of being unable to sell them.

Therefore, before engaging in spot trading, always verify the token’s contract address via the official website or blockchain explorer to ensure you are purchasing the correct asset.

Method 2: Margin Trading

Besides spot buying, investors can also participate in the Token market through margin trading (leverage trading).

Margin trading features that you do not need to invest the full amount of funds. Traders only need to pay a portion of the funds as margin to control a larger position. For example, using 10x leverage to go long on UNI at $3, requires only $0.3 to control a 1 UNI position.

In contracts for difference (CFD) and U-based perpetual contracts, traders do not actually hold the native Token, thus avoiding fake token risks.

However, leverage trading comes with higher risks:

Since Token volatility is inherently higher than Coins, leverage trading further amplifies gains and losses. It is strongly recommended that leverage not exceed 10x, especially to avoid liquidation risks. Unlike BTC, whose daily volatility is decreasing, newly issued Tokens often experience daily fluctuations of 10% or more, which has become normal.

Choosing a Safe and Reliable Trading Platform Is the Top Priority

Whether using spot or margin trading, the first step is to select a secure, regulated trading platform. The platform’s security directly relates to your fund safety, and this cannot be compromised.

By considering regulatory compliance, security records, liquidity, and user experience, you can lay a solid foundation for your Token investment journey.