Being familiar with different token categories can be a key component in understanding what makes cryptocurrencies valuable. There are over 10,000 different tokens, and they all have unique use cases and purposes that give them value. Fortunately, there is no need to study each and every token, since most tokens fall into a number of categories.
Read the following lessons for more beginner trading knowledge:
Layer 1 blockchain tokens
All layer 1 blockchain networks have native layer 1 tokens, which are used to pay for transaction fees (among other functionalities). For example, users can stake their tokens to secure and verify the network, earn rewards (if proof-of-stake), participate in governance votes, create smart contracts, and use various decentralized applications (dApps) built on top of layer 1 blockchains.
But why are there so many layer 1 blockchains? According to the scalability trilemma, the nature of blockchain systems restricts them to a maximum of two properties from either security, scalability or decentralization. This means all blockchains must compromise on at least one of these three fundamental properties and use different technological approaches to achieve more secure, scalable and decentralized networks.
The most popular and commonly used layer 1 blockchain is Ethereum (ETH), followed by:
Stablecoins provide price stability and increase crypto adoption by limiting their speculative nature. Stablecoins are usually pegged to fiat currencies like USD to achieve stability. In the case of USD-backed stablecoins, this stability is maintained by having 1 USD for every token issued. This means that for every stablecoin in the market, the entity behind it has 1 USD in assets to ensure the token’s value does not go below the 1:1 ratio.
The most popular stablecoin is Tether (USDT), followed by:
Just as Huobi Global has its native token, Huobi Token (HT), most other exchanges have their own native tokens. These tokens have a variety of purposes, such as lowering trading fees, acting as a voting tool, and increasing their exchanges’ liquidity.
In addition to possible price increases, exchanges offer token holders special offers and new ways to earn profits. For example, Huobi Token offers users the possibility of purchasing newly launched tokens at a discount before they are listed on the Huobi exchange through Huobi Prime. This way, users can participate in token launches previously offered only to an exclusive group of investors.
Other exchange tokens include:
Privacy tokens preserve users’ privacy during transactions or when using dApps. It is a common misunderstanding that all cryptocurrencies are private. In reality, most blockchains are public, which means anyone can see all transactions in real-time. So while traders’ identities aren’t linked to token wallets, it can be relatively simple to identify a wallet owner. Therefore, privacy tokens are essential, especially for individuals and organizations who want to remain anonymous.
One example of a privacy token is Tornado Cash (TORN). It ensures asset privacy with a technique that lets users deposit ETH tokens, then makes it impossible to track the withdrawal address back to the deposit address.
Other privacy tokens include:
Meme tokens are based on Internet memes or running jokes, and typically don’t have specific use cases. However, due to their record of seeing huge price surges within short periods of time, they are often attractive to crypto beginners. A strong community is a significant part of the value of meme tokens – the more people buy and hold these tokens, the more their prices soar. In addition, there have been numerous instances of celebrities driving up the popularity of certain meme coins.
Even though these tokens are predominantly based on hype and false promises, some have gained billion-dollar valuations, even making it into the top 10 most valuable token positions. The most popular meme tokens are Dogecoin (DOGE) and Shiba Inu (SHIB), both of which were inspired by Shiba Inu memes and have achieved a massive following.
You can both find all the tokens mentioned in this lesson on Huobi Global.