## Understanding Token and Coin: Distinguishing the Two Major Cryptocurrency Asset Classes

In the development history of cryptocurrencies, **Coin and Token** have both been translated as "tokens" or "cryptocurrencies" in Chinese, but they fundamentally differ in essence. Early projects like Bitcoin and Litecoin used the term Coin, but after Ethereum's emergence, Token and Coin began to be used interchangeably, making it difficult for many investors to distinguish between them.

### What exactly is a Token?

**Token, often translated as pass or token in Chinese, is a certificate representing specific rights and digital assets** that can be traded, transferred, or exchanged on the corresponding blockchain. Unlike Coin, Token does not have its own dedicated blockchain but is issued on existing blockchains.

Since Ethereum launched the ERC-20 standard in 2015, anyone can issue their own Token on it. This innovation greatly lowered the barrier to token issuance. Currently, Ethereum remains the blockchain with the largest total Token issuance worldwide. From this perspective, Token is a broad term that includes various forms such as DeFi application tokens, Layer-2 ecosystem tokens, NFT tokens (like APE, SAND), and more.

### The three main categories and functions of Tokens

The Swiss Financial Market Supervisory Authority (FINMA) classifies Tokens into three categories:

**Payment Tokens** refer to tokens aimed at enabling secure, efficient, and low-cost transactions, with stablecoins being the most typical example. These Tokens are mainly used to address practical needs in payment scenarios.

**Utility Tokens** provide access passes for various applications; most ERC-20 tokens on Ethereum belong to this category. They usually grant holders certain ecosystem rights, such as governance voting or fee discounts.

**Asset-backed Tokens** represent ownership certificates of a project or asset, allowing holders to enjoy the value benefits of the token. It is important to note that holding such Tokens in the crypto space does not equate to owning company shares or dividend rights.

In practice, a Token often possesses two or even three of these attributes simultaneously, making it difficult to describe all its features with a single classification.

### The core differences between Token and Coin

**The fundamental difference is that Coins have their own blockchain infrastructure**. Bitcoin operates on the Bitcoin blockchain, and Ethereum on the Ethereum blockchain; they are the native assets of these networks.

**Tokens, on the other hand, do not have independent blockchains** and are built on existing ecosystems. This results in Token application ecosystems generally being less extensive than Coins, and sometimes unable to support standalone applications.

Functionally, Coins mainly support payments and staking, while Tokens, in addition to these functions, often support voting, governance, and other complex rights. Common issuance methods for Coins include ICO, IDO, IEO, etc., whereas Tokens are often generated through mining. Typical Coins include BTC, ETH, SOL, DOT, etc., which are Layer-1 blockchain assets. Representative Tokens include application tokens like MATIC, UNI, LINK, AAVE, etc.

### Investing in Coins and Tokens: Distinctive Choices

Coins are viewed as the foundational infrastructure of public blockchains, while Tokens are application layer solutions. The former mainly optimize the blockchain's underlying layer, and the latter develop various applications and services on this foundation. Both are indispensable, forming a complete ecosystem.

**Compared to Coins, Tokens have greater application scalability and lower development difficulty**. The value of Coins is often limited to infrastructure optimization; if they fail, it is hard to pivot, which is common among many public chains. Tokens, due to their diverse applications, allow teams to quickly adjust or launch new products even if certain services are unpopular in the market.

**Tokens tend to be more volatile than Coins**. Utility tokens like UNI, SNX, MKR often experience price fluctuations exceeding those of BTC and ETH, especially during bull markets. This provides more trading opportunities for short-term investors but also entails higher risks.

### Two ways to invest in Tokens

**Spot trading** is the most direct method of Token investment, where traders hold actual tokens. For example, if the current price of UNI is $3, buying at this price grants full ownership of 1 UNI. However, beware of fake tokens with the same name—some teams may issue low-quality or unlisted tokens with the same name as well-known tokens, which cannot be sold after purchase. Therefore, it is essential to verify the token contract address on the official website or blockchain explorer before buying.

**Margin trading** does not involve actual token holdings. Traders only need to deposit part of the funds as collateral to open a position. For example, using 10x leverage to go long on UNI at $3, only $0.3 is needed to establish a position of 1 UNI. In derivatives or perpetual contracts trading, traders do not actually own the native tokens.

Because Tokens are usually more volatile, investors should strictly control position sizes and leverage. It is recommended not to exceed 10x leverage, especially for newly issued Tokens, to avoid liquidation risks. A daily fluctuation of 10% is common in the Token market, much higher than BTC.

Choosing a secure, regulated trading platform is the top priority for Token investment. Whether spot or margin trading, the operational process is similar, but platform selection is crucial.