DeFi Token Development
DeFi protocols are on the rise (exponentially) and every protocol is powered by its native DeFi token. It has led to massive DeFi token development activities and circulation of the same tokens in the market. This is because conventional finance systems are undergoing unexpected shifts in their industry due to the rise of innovative startups that bridge breakthrough fin-tech technologies with their revolutionary business model. Such a transformation proves to offer multiple benefits and serves a greater purpose to the common masses.
Hence, DeFi tokens are increasingly being adopted and they seem to fare better than cryptocurrencies.
Let’s explore more about the role of DeFi tokens, its types, benefits in a DeFi platform, and how you can create your DeFi tokens.
Crypto Coins vs Crypto Tokens
It is suggested not to confuse cryptocurrencies (Crypto coins) with crypto tokens. Because they differ in almost all aspects. Let’s analyze the fundamental differences between crypto coins and crypto tokens.
Crypto Coin:
- 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.
Example:
- BTC (Bitcoin) functions on the Bitcoin blockchain platform.
- Ether (ETH) functions on the Ethereum blockchain platform.
Coins are used in transactions & trading. Mostly in centralized exchanges.
Crypto Token:
- 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.
Example: Binance has its own token. When users trade with BNB (Binance Token), their fees are 50% less.
Tokens are used to tokenize any real-world asset
Example: The WePower project (dApp) allows users to buy and sell electricity on the blockchain using smart contracts. WPR is its token. It represents a certain amount of energy.
Security Tokens:
Users purchasing security tokens are investing their money in the ICO with the expectation of profit. They act as traditional securities.
Equity Tokens:
If a token is linked to stock or equity in a company that issues it, it’s an equity token.
Utility Tokens:
These tokens provide people with access to either a product or service.
Payment Tokens:
They are simply used as a means to pay for goods.
Types of DeFi tokens
ERC-20
- 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.
ERC-721 (NFT)
- 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
- 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
- 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
Here are the top 7 DeFi tokens with a mass adoption rate.
Launch your DeFi protocol and DeFi tokens with Osiz Technologies
Osiz Technologies, a leading
DeFi Development Company, has 10+ years of experience in blockchain technology. Our pool of blockchain architects and DeFi developers are guaranteed to deliver quality DeFi token and platform development services to launch your smart contract based DeFi platforms in the global DeFi market.
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