Crypto Academy Season 3 Week 8 - Beginner's Course | Understanding Tokens by @ rexxalo

Prior to this lecture topic, i had really been confused on the meaning of the different terminologies that were sometimes used in the cryptocurrency world.

Some terms like Token, coin, what their similarities and differences are, were a great part of this confusion.

Thanks to the professor @reminiscence01 for this simplified lecture topic, I now completely have an understanding of the major things related to Token and coins.

This post is in response to the homework questions associated with the lecture topic:

Question 1:

• what do I understand by Token
• give example of at least 5 tokens
• Identify the blockchains they are all built on (at least 3 different blockchains)

There was a time my younger brother told me he invested a large amount of money my Aunt gave him in something called “Feg Token”.

I was absolutely furious at this.

I thought how exactly did this silly boy fall into this sort of scam.

Because i knew for sure it was not a coin he bought, I strongly believed that this token thing must really be some sort of fraud.

Now, I know better.

I now understand tokens in cryptocurrency to be a digital asset created on an already existing blockchain for a specific use.

To further simplify, a token can be seen as a unit of value issued by a blockchain.

This token is created by the blockchain in the context of a specific use.

This happens so as to prompt user interaction and supply rewards throughout the chain of token holders.

Because these tokens are based within a blockchain, they are conferred by all the securities and rules surrounding the blockchain.

Token owners reserve different rights in voting power and decision making, thereby making the token to obtain an important value which is very similar to investment.

These tokens are invested in futuristic projects in the hopes that these projects would generate profit.

These Tokens can be used for various purposes depending on their categories.

Some of these purposes are:

• Investment purposes
• For Storing value
• To make purchases

Tokens and the blockchain it is built on

Tokens built on ETHERUM Blockchain:

imagesource

• USDC
• Chainlink (LINK)
• Binance USD (BUSD)
• Wrapped bitcoin (WBTC)
• yearn.finance (YFI)

Token Standard: ERC20

Tokens built on BINANCE SMART CHAIN Blockchain:

imagesource

• Pancakeswap(CAKE)
• Thorchain (RUNE)
• Kva (KAVA)
• Safepal (SFP)
• Wazir X (WRX)

Token Standard: BEP20

Tokens built on POLKADOTBlockchain:

imagesoure

• Ren (REN)
• REEF
• Linear (LINA)

Question 2:

• What is the difference between a token and a coin?.

Token has already been understood to be a digital asset that already runs on an existing blockchain.

They represent a service in the ecosystem of an upcoming project.

Coins on the other hand are more like virtual currencies.

They are considered to be the native currency of which a blockchain uses for various transactions.

These cryptocurrency coins store value over a period of time just like the real money we use for daily expenses.

Though Tokens and Coins have some similarities to the point that sometimes it becomes confusing to distinguish between the two.

I will highlight some major differences between a token and a coin.

Difference between Token and Coin

Token	Coin
This is built on an existing blockchain	The coin is the owner of the blockchain
Dependent on the coin	Practically independent
Used in paying for services on the blockchain	Used in funding mining cost
Created mainly to be used by Dapps	Created mainly for transaction costs
There is flexibility in the usage of tokens	Used mainly for one purpose (no flexibilty)
Can be created very easily	Usually difficult to create
Supply is unlimited	Supply is limited
Tokens can be bought with coins	Coins cannot be bought with tokens
Distributed through the ICO process	Distributed through mining process
Examples of Tokens are Chainlink and PancakeSwap	Examples of coins are Bitcoin and Etherum

Question 3: Explain the following different categories of token listed below and explain its features

• Utility tokens
• Security tokens
• Equity tokens
• Non-Fungible token (NFT)

Utility tokens

This is a type of token issued during ICO for capitalizing or financing projects.

These particular utility tokens enable access to the objective of the funded project.

The holders of this token have a significant stake and a voting right of participation in the decision making process of the project.

Example of a Utility token: Basic Attention Token (BAT)

Features of the utility token

• Used in paying of services
• Can be swapped with other cryptocurrencies
• Accords voting right for participation to users
• Accords significant stake to users

Security tokens

These tokens are similar to other tokens, only difference being their linkage to traditional security.

This means they are linked to some financial values.

The primary aim of the security token is to provide rights that are very similar to traditional shares, bonds, stocks or assets.

You can say the security token takes the form of digitized shares or bonds.

This token links traditional finance and cryptocurrencies.

How?

By giving potential investors a fraction of company shares, which is represented by holding security tokens.

source

Features of the security token

• Holders of this token can receive shares from all gained profits.
• Holders of this token have voting rights in participation and making decisions.
• Ability to own shares of the company.

Equity token

Equity tokens are issued to signify some form of ownership in project and company investments.

It is a type of token that represents the stock of a company.

Most times, each of this equity tokens constitutes a percentage of the property held by the user or investor.

Examples of equity token: BFToken

source

Features of equity token

• Gives investors voting rights to participation and decision making.
• This token ensures entitlement to dividends from company's profits.
• Holding this token is equivalent to owning a percentage of the stock of the company.

Non-Fungible Tokens (NFT)

This is a token that is unrepeatable and is in itself a unique token.

It cannot be divided but can be used to represent a lot of objects either in the real or digital world.

It retains its characteristics and ownership within a blockchain through a smart contract.

source

Features of an NFT token

• Very unique, indestructible and not replaceable.

• Gives the holder proof of ownership.

Question 4: Write extensively on any token listed in question one

Yearn.Finance

I chose this token because i had a discussion with one of my crypto learning colleague, and he mentioned this token.

He specifically said i should pay attention to the massive growth this particular token would yield in the coming years.

So i would like to write on Yearn.finance.

taken from coinmarketcap

Yearn.finance is a decentralized project.

It runs on the Etherum blockchain.

It has a platform that facilitates insurance and yield generation for users.

Users on this platform can transact without any form of limitations, issue or controls.

History of Yearn.Finance

• was introduced on July 17, 2020.
• Token market capitalization hit $690.1 million as at September 2020.
• At one point, the YFI token weekly trading volume reported to be pegged at more than $2.2bn.

Features of Yearn.Finance

• Supports flash loans which help liquidate funds faster and efficiently.
• Provides a platform where users can deposit funds and easily swap crypto.
• Possesses its own governance token.
• Etherum based ERC-20 token.
• Its key feature is called "Vaults". This is where students can use cryptocurrency to earn "yields".

Aim of the project

Aim of Yearn.Finance is to allow users to optimize their crypto assets through lending and trading services.

Analysis of yearn.finance on coinmarketcap

Yearn.finance	data
The price	$39,740.27
Market cap	$1,456,214,252
Market rank	$1,456,214,252
Market Cap/TVL Ratio	0.3071
Volume-24h	$226,506,042
Volume/Market Cap	0.1561
Circulating Supply	36,635.44 YFI
Maximum supply	36,666 YFI
Total supply	36,666 YFI

Conclusion

As an operator in the crypto space, it is appreciably important to know :

• what tokens are.
• how they are created and used.
• The different blockchains they are built on.
• How tokens are different from coins.

Knowledge of the above will greatly help in guiding your decisions.

This knowledge is highly necessary so that you won’t be like me, accusing your younger of investing money into scam.

Now, I know better.

Thank you professor @reminiscence01 for this very insightful lecture.