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What are Web3 Tokens?
Key Takeaways
Copy link to section- Web3 tokens include a range of categories. Web3 tokens can include utility tokens for platform services, governance tokens for voting, security tokens for regulated investments, and NFTs for unique digital assets.
- Research is necessary for choosing a Web3 token. Researching use cases, tokenomics, and functionality is essential for informed investments in Web3 tokens.
- They’re blockchain based assets. Web3 tokens are blockchain-based digital assets that support decentralized applications (dApps) and operate without centralized control.
What Exactly are Web3 Tokens?
Copy link to sectionWeb3 tokens are cryptocurrencies produced through blockchain technology to assist in enabling decentralized applications (dApps).
These tokens have distinct jobs on their blockchains including facilitating transactions, governing, and executing various functions.
Unlike traditional currencies, these tokens aren’t controlled by centralized institutions.
Web3 tokens execute jobs through smart contracts, and thus, do not require middlemen.
Smart contracts provide trust and protection, and individuals feel safe in middlemenless systems.
On decentralized exchanges (DEXs), investors trade and purchase, and deals directly between individuals take place.
For new investors, understanding what a token is and does is crucial.
Knowing how to find the best Web3 tokens is also essential to identifying projects with strong utility and long-term potential.
Types Of Web3 Tokens
Copy link to sectionWeb3 tokens power operations in blockchain systems and enable functionality in decentralized systems.
Tokens have various types, and every type is uniquely specialized in operating in the digital economy.
Utility Tokens
Copy link to sectionUtility tokens provide users access to goods and services on blockchain systems.
The tokens tend to function according to how the platform is configured.
Popular examples include Chainlink’s LINK, designed to assist in data for smart contracts, and Filecoin’s FIL, designed for storage services on a network.
In 2017, in the ICO hype, companies funded their ventures through utility tokens for future network use.
Governance Tokens
Copy link to sectionGovernance tokens grant voting rights on blockchain protocols or projects.
Users influence decisions like development roadmaps and funding allocations to shape the platform’s future.
Important governance tokens include Uniswap’s UNI, for voting on decisions for DeFi protocol, and Aave’s AAVE, for voting on borrowing regulations.
Individuals who hold them directly take part in decentralized decisions.
Security Tokens
Copy link to sectionSecurity tokens represent possession of physical objects such as property, stock, or bonds.
Individuals who hold them receive monetary benefits, such as dividends or profits, on their holdings.
Unlike other tokens, securities undergo strict regulations to protect investors.
Popular examples include tZERO’s tokens, which align with equity or bond ownership through blockchain.
Non-Fungible Tokens (NFTs)
Copy link to sectionNon-fungible tokens, or NFTs, are unique digital objects such as collectibles, artwork, or music.
An NFT carries an individual identifier unique to it, different from any other token.
Websites like OpenSea list NFTs in various categories, such as digital artwork and game assets.
Two such examples include Bored Ape Yacht Club (BAYC) and CryptoPunks. These tokens allow individuals to own unique objects in digital and physical format.
Conclusion
Copy link to sectionWeb3 tokens contribute to building a web that is decentralized and user-centric.
These tokens do more than digital possessions; they redefine what it is to have something, to have power, and to access the web.
As web3 evolves, understanding such tokens is crucial to take advantage of such massive disruption.
If you’re an investor, builder, or simply someone who is interested, exploring Web3 tokens is an opportunity for you.
By staying informed about securing assets with the best Web3 wallets, and assessing if Web3 cryptos are a good investment, you can position yourself for success in this rapidly growing ecosystem.
Keeping yourself current and having an understanding of them and their technology prepares you for the web’s future.
