GuShiio.com Tokens achieve true digital ownership.
Author:Miles Jennings、Scott Duke Kominers、Eddy Lazzarin
Compiled by: Shenchao TechFlow
As activity and innovation in token-based network models continues to increase, builders want to know how to distinguish between different types of tokens and which token may be the best choice for their business. At the same time, consumers and policymakers are working to better understand the role and risks of blockchain tokens in applications.
To help organize the conversation, we provide definitions, examples, and frameworks to help you understand the seven types of tokens most commonly used by entrepreneurs:Internet tokens,security tokens、Company Support Tokens、Functional tokens、Collect tokens、Asset-backed tokensandMemecoin 。We outline them in more detail below.
Quick review: Tokens and their characteristics
Fundamentally speaking,Tokens achieve true digital ownership。
More accurately, a blockchain is a decentralized computer made up of a network of individual computers that maintain shared ledgers.“airborne computer”。Tokens are data records on these ledgers that track quantities, permissions and other metadata. Crucially, these data records can only be changed based on rules encoded on the blockchain that can be used to grant enforceable rights.
Beneath this precision, there are many details that have an impact on design, functionality, value and risk: Because tokens are embedded in software, they can be programmed to represent almost anything, any digital form or property record. This means that tokens can be designed as digital stores of value such as Bitcoin, productive and consumer assets such as Ethereum, collectibles such as digital transaction cards and game items, payment stablecoins such as USDC, and even digital stocks.
Some tokens provide the holder with various rights (such as voting rights or economic rights), while others only allow the use of products or network services. Some tokens can be transferred between users, while some cannot. Some tokens are interchangeable, meaning that all units are equivalent (e.g., U.S. dollar bills), while others are non-interchangeable, meaning that they represent unique personal assets (unique, e.g., transaction cards, or even Mona Lisa).
These design choices are important because they determine whether a token is a good store or medium of exchange of value; whether it is a token with intrinsic functions and/oreconomic valuetheproductive assets; or whether it is inherently worthless. The characteristics of a particular token also determine how it will be treated under applicable laws.
So whether you are building blockchain-based projects, investing in tokens, or simply using tokens as a consumer, it is crucial to understand what to look for. It is important not to confuse Memecoin with web tokens. The rest of this article is designed to help eliminate this confusion.
token type
Network Token
Internet tokens are essentially linked to the programmatic functions of blockchain or smart contract protocols, and their value also derives from this.
Network tokens often have built-in utility; they can be used to operate the network, reach consensus, coordinate protocol upgrades, or stimulate network action. The networks to which these tokens are associated usually (and in most cases should) contain information that drives the token’s value.economic mechanism。These include programmatic buybacks, dividends and other changes to the total supply of tokens through token creation ( faucets) or destruction (sinks) to introduce inflation anddeflationPressure to serve the network.
Internet tokens can have trust dependencies similar to commodities and securities. Recognizing this, the SEC’s2019 FrameworkandFIT21Both stipulate that when these trust dependencies are alleviated through decentralization of the underlying network, network tokens will be excluded from U.S. securities laws. The core essence of decentralization is that the system canWithout human control(an individual, company or management team).
Internet tokens are most suitable forGuide the creation of new networks, assign ownership or control of the network to its users, and/or ensure that the network can self-fund continuous and secure operations. Examples of network tokens include DOGE, Bitcoin’s BTC, Ethereum’s ETH, Solana’s SOL, and Uniswap’s UNI. In the context of smart contract protocols such as Uniswap and Aave, network tokens are sometimes called“protocol tokens”or“Application Tokens”。
security tokens
Securities token representativesecuritiesThe digital form of, which can be traditional (such as corporate shares or corporate bonds) or can have special characteristics, such as providing limited liability companiesprofit equity、Athletes ‘share of future income, evenSecuritization rights for future litigation settlement payments。
Securities usually confer certain rights, titles or interests to the holder, and their issuer usually ownsInfluence or buildUnilateral power over asset risk. As the U.S. Securities and Exchange Commission is expected to modernize securities laws to allow on-chain trading, it will betokenizedThe number and types of securities may increase, which may increase the efficiency and liquidity of securities markets. But even as categories continue to grow, digital securities will still be subject to U.S. securities laws
Securities tokens have been used to raise funds for commercial enterprises. Examples of securities tokens includeEtherfuse StablebondsandAspen Coin , the latter is a partial ownership interest in Aspen Regis Resort.
Company-backed tokens
Company-backed tokens are intrinsically linked to and derive value from off-chain applications, products or services operated by the company (or other centralized organization).
Like network tokens, company-backed tokens may use blockchain and smart contracts (for example, to facilitate payments). But because they are mainly related to off-chain operations rather than network ownership, companies can unilaterally control their issuance, utility and value. Like functional tokens (described below), company-backed tokens often have their own embedded utility. Unlike functional tokens, company-backed tokens are speculative.
Given these characteristics, while company-backed tokens do not confer clear rights, ownership, or benefits to the holder as traditional securities, they have a similar trust dependence to securities: their value essentially depends on the system controlled by an individual, company, or management team. Therefore, although company-backed tokens are not securities themselves, when company-backed tokens attract investment, their trading may be subject to U.S. securities laws.
Company-backed tokens may become a legal category. However, they have historically been mainly used in the United States to illegally circumvent securities laws to attract investment in applications, products or services controlled by the company, and may serve as a proxy for the company’s equity or profit interests. Examples of company-backed tokens include FTT, which serves as a profit interest on the FTX exchange, or hypothetical cloud service providers issuing tokens that allow holders to access cloud services and receive a portion of the on-chain revenue from such services. At the same time, BNB is an example of a company-backed token that evolved into a network token with the launch of Binance Smart Chain. Company-backed tokens are sometimes called“Start-up tokens”, or, given their links to off-chain applications, they are called“Application Tokens”。
For more information on the differences between network tokens and company-backed tokens, including FTTs, please read“Internet tokens and company-backed tokens”。
Functional tokens
Functional tokens provide practicality within the system and are not used for investment purposes. Functional tokens are often used as currency in the digital economy. Examples include digital gold in games, loyalty points in membership programs, or points that can be redeemed for digital products and services.
Importantly, functional tokens are different from securities tokens, Internet tokens, and corporate-backed tokens because they are specifically designed to deter speculation. For example, these tokens may have no supply cap (meaning unlimited quantities can be minted) and/or limited transferability; if not used, they may expire or depreciate, or they may have monetary value and utility only in the system in which they were issued. Most importantly, they do not provide, promise or imply financial returns. Given that they are not suitable as investment products, functional tokens are generally not subject to U.S. securities laws.
Functional tokens are most suitable for use as currency in a digital economy, where issuers gain economic benefits by controlling the monetary policy of the digital economy (i.e., acting as a central bank) and maintaining a stable token value, rather than benefiting from the appreciation of token value. examples includeFLY , it is the loyalty and payment token for the Blackbird restaurant network. Another example is Pocketful of Quarters, an in-game asset that did not receive the Securities and Exchange Commission’s approval in 2019.Action relief. RobuxandStart Alliance PointsNot yet tokenized, but otherwise, they embody the concept of functional tokens well. Functional tokens are sometimes called“practicaltokens”、“Loyalty tokens”or“integral”。
Collect tokens
The value, utility or meaning of a collectible token is derived from a record of ownership of tangible or intangible goods. For example, collectible tokens can be digital simulations or representations of an art, musical work, or literary work; collectibles or merchandise, such as ticket stubs for a concert; membership in a club or community; or assets in a game or metaverse, such as a digital sword orMetaverse Landland.
These tokens are often irreplaceable and are often of practical use. For example, collectible tokens can serve as event licenses or tickets; can be used in video games (such as the sword); or can provide ownership related to intellectual property。Because collectible tokens are typically associated with finished products or products and do not rely on the efforts of third parties, they are generally not subject to U.S. securities laws.
Collectibles tokens are best used to convey ownership of tangible or intangible goods. Many (though not all)“ NFT ”Products all fall into this category. Examples include NFTs that convey ownership of digital art or other media; profile pictures (pfps) like CryptoPunks and Bored Apes, and other virtual fashion andbranded goods; game items; and account records or identifiers (for exampleENS domain) 。
Some collectible tokens are directly associated with physical products or provide a digital extension of the physical product experience, such asPudgy Penguins toysandGenerative GoodsCollection cards; either provide a digital representation of physical goods for easy tracking and/or exchange, such as NFT event tickets and BAXUS’sVault Alcohol NFT。
Asset-backed tokens
The value of asset-backed tokens stems from claims or economic risk on one or more underlying assets. These underlying assets may include real-world assets (such as commodities, fiat currencies, or securities) or digital assets (such as cryptocurrencies or equity in a liquidity pool).
Asset-backed tokens can be fully or partially collateralized and can be used for different purposes: as a store of value, hedging instruments, or on-chain financial primitives. Unlike collectibles tokens, which derive value from ownership of unique goods such as digital art, in-game items, or event tickets, asset-backed tokens function more like financial instruments, deriving value from their collateral, price-linked mechanisms, or redemption rights. However, the regulatory treatment of asset-backed tokens depends on their structure and use. Some tokens, such as legally backed stablecoins, are generally not subject to U.S. securities laws. Other tokens, such as certain derivative tokens, may be subject to securities or commodity regulation if they represent investment contracts or future-like instruments.
There are many use cases for asset-backed tokens, including:
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stablecoins, pegged to currency or assets;
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Derivative token, provide synthetic exposure to underlying assets or financial positions;
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Liquidity providers (LP) Tokens, representing claims on pooled assets in a decentralized finance (DeFi) agreement;
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Deposit receipt token, represents assets pledged or in custody.
Examples include USDC (a stablecoin backed by fiat currency), Compound’s C token (an LP token), Lido’s stETH (a liquidity pledge token), and OPYN’s Squeeth (a derivative token that tracks the price of ETH).
Memecoins
Memecoin is a token with no intrinsic utility or value, is usually associated with Internet memes or community-driven movements, and has no fundamental connection to the network, company or application.
Memecoin’s price is driven entirely by speculation and related market forces, making it highly susceptible to manipulation. Its main characteristics are the lack of intrinsic purpose (if there were, they would no longer be Memecoin), the lack of practicality, and the resulting zero-sum nature and volatility. MemecoinGenerally not subject to U.S. securities laws, but is still subject to anti-fraud and market manipulation laws.
Examples include PEPE, SHIB and TRUMP.
Not all tokens fall into one of these categories perfectly: entrepreneurs regularly iterate and test new models. For example, if social andreputationIf tokens are not investable, they may be more like functional tokens, or if they are controlled by a centralized issuer, they may be more like company-backed tokens. Tokens can also evolve from one category to another as token characteristics change or new functions are added, making classification difficult.
But the decisive feature of classifying these categories is the expected source of value accumulation. Flowcharts help illustrate this:
(Note: The picture is an AI translation, which is inconsistent with the original token definition)
Acknowledgements: We would like to thank Chris Dixon, Tim Roughgarden, and Bill Hinman for their helpful comments; as well as Tim Sullivan’s editors.
Miles JenningsHe is general counsel to a16z crypto, advising the company and its portfolio companies on decentralization, DAO, governance, NFT, and state and federal securities law.
Scott Duke KominersisHarvard Business SchoolSarofim-Rock Professor of Business Administration,Associate Professor of Economics, Harvard Universityanda16z cryptoResearch partner. He also advises companies on web3 strategy and marketing and incentive design; for further disclosures, please refer tohis website。he stillTokens for Everything: How NFT and Web3 will change the way we buy, sell and createco-author of.
Eddy LazzarinHe is the chief technology officer of a16z crypto. He manages the engineering, research and security teams that support the investment process and work with portfolio companies to shape the future of the Internet.
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