Written By
Nader
Product Manager

What is a Token?

April 19, 2021

Crypto tokens are digital assets that can serve many functions. A token can be a form of currency, it can represent a digital or physical collectible, it can signify a digital identity, it can be used to access a service… and sometimes it can do any number of these things at the same time.

It is important to note that a crypto token is often distinct from a crypto currency. For example, Ethereum has its native currency, ether (ETH), but there are also many different types of tokens built on top of ether and the Ethereum network.

At the technical level, a token is code that expresses the value of the token in its native currency, integrates the token with the network it is built on, and communicates the terms of the smart contract that executes the functions of the token.

Fungibility

Token types can be broken down into two main categories, fungible and non-fungible. Fungibility means that items within a set are indistinguishable from each other. The fungibility of a token is determined by the token standard the smart contract follows.



Tokens that follow the ERC-20 standard are fungible by nature and are highly divisible. They are the cornerstone of DeFi and allow for smart contracts to easily keep track of balances. They can also be thought of as the most simple unit of accounting and have a wide range of uses including currency, governance, debt slips, interest accruing bonds, and more.

Tokens that follow the ERC-721 standard are non-fungible and used to express an item that is totally unique in some way. This is the standard that is most commonly used to build NFT projects.

Transacting with Tokens on the Zapper Dashboard

There are over 2000 Tokens integrated with Zapper across many different protocols and networks. By swapping some of your assets for different tokens, you are investing in the protocols that power that token, enabling their teams to continue to build in DeFi.



The token you receive in exchange for your investment does not have to sit idly in your wallet, either. Tokens can be staked in yield farms to earn passive income, and many token holders are also welcomed to vote on governance decisions relating to the protocol. 

If you have swapped your assets for tokens, spend some time getting to know the protocol and community you have become a part of through your investment to see what benefits your token offers you.


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