DeFi Token Development
Crypto Coins vs Crypto Tokens
- Crypto coins are used as a means of payment.
- Coins have a value that’s subjected to increase (or) decrease based on the volatility of the crypto market.
- Coins are developed on the native blockchain platform.
- BTC (Bitcoin) functions on the Bitcoin blockchain platform.
- Ether (ETH) functions on the Ethereum blockchain platform.
- Beyond payment, crypto tokens have a wider functionality.
- Crypto tokens are a step ahead of coins. In some cases, they don’t hold explicit value, but they own various rights like governance and voting, and long term benefits like utility and security.
- Tokens are developed on the existing blockchain platform. Credits to Ethereum blockchain for generating a vast collection of crypto tokens owing to its benefits.
- Most of the tokens are used in decentralized platforms as they serve countless services.
Tokens are used to tokenize any real-world asset
Types of DeFi tokens
- According to Wikipedia, ERC20 is a ‘list of rules that an Ethereum token has to implement, giving developers the ability to program how new tokens will function within the Ethereum ecosystem. The ERC-20 token standard became popular with crowdfunding companies working on initial coin offering (ICO) cases due to the simplicity of deployment, together with its potential for interoperability with other Ethereum token standards.’
- ERC-20 tokens are fungible ie., they can be exchanged/traded.
- ERC-20 tokens can be easily integrated with smart contracts.
- They offer a variety of utility benefits.
- Can be used on every other compatible crypto project.
- ERC-20 based DeFi tokens are known for their steady and smooth functioning on decentralized finance applications (dApps).
- Facilitates secure and easy transaction.
- ERC-20 tokens are used to tokenize real-world assets.
- According to erc721.org, ‘ERC-721 is a free, open standard that describes how to build non-fungible or unique tokens on the Ethereum blockchain.’
- ERC-721 tokens are non-fungible ie., they cannot be traded/exchanged. They act as unique collectibles.
- ERC-721 tokens are actively employed in DeFi based gaming platforms on Ethereum, TRON, and EOS blockchain networks.
- Example: Cryptokitties.
- Their value is defined by the uniqueness of the tokens.
- Example: Just like Topps Baseball cards or Pokemon cards, every ERC-721 token has a unique value.
- Governance tokens offer the holders the power to influence (or) make decisions related to any aspect of the corresponding organization (mostly DeFi platforms).
- Users are provided with voting rights on major ventures of the platform.
- Users are like the 12th man off the field who gets to steer the show with their support. In short, users gain virtual ownership over the platforms they use.
- Stablecoins are digital assets pegged to the real-world value of fiat currencies.
- This is aimed to maintain consistency in its value and prevent market fluctuation in volatility. Thus it minimizes the risk.
- Example: USD Tether (USDT), True USD (TUSD), Paxos Standard (PAX), USD Coin (USDC), and Binance USD (BUSD).
- Due to high volatility, cryptocurrencies are overlooked in daily usage. But due to its stability, stable coins are actively used by users.
- In Fiat-collateralized stable coins, the reserve-issuance ratio is 1:1. For every fiat currency reserved, an equal amount of stable coin is issued.
- Example: If admin owns 1 million fiat (USD) currencies, he issues 1 million stable coins.
- In crypto collateralized stable coins, the underlying assets are cryptocurrencies. Hence, they face volatility concerns.
- In algorithmic stable coins, coins are not pegged to any external assets. They derive their value from a consensus algorithm based on an increase/decrease in the supply of tokens.
Examples of DeFi tokens
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