Types of Tokens

Tokens serve different purposes, so you can pretty much narrow it down to three types.

Payment tokens. They are the most basic type of tokens. They allow users to make payments and transactions and don’t present any additional features.

Security tokens. Contrary to their name, they are used for investments. These are the tokens that can be staked (frozen on the account for a certain amount of time to receive rewards) and held for yielding.

Utility tokens. These tokens serve as the main currency for decentralized apps.

NFT. Non-fungible tokens represent the digital ownership of an object. They are used as collectible items.

What can I use a token for

Purposes of tokens don’t exactly explain why your project might need one. So let’s take a deeper look into this.

Basically, tokens transfer value within a certain project. That’s the main reason they exist. And with that in mind, you can already see several ways a token could be used.

Some projects, especially at the very beginning, run ICOs — initial coin offerings to raise funds. Thus, the users support the project and receive the token that allows them to participate in the decision-making process or use some of the project’s features.

Tokens may be used to drive the adoption of a project or a DApp. Most apps use this tactic, especially new ones. Users may receive discounts for using a particular currency backed by the DApp.

Less often tokens are used as a promotional tool or for a particular cause. These tokens may attract new users but they end up being far less relevant.