Demystifying Web3 Cryptos: Exploring the Vast World of Blockchain Tokens
The world of web3 cryptos encompasses a diverse array of digital assets built on blockchain technology. But between utility tokens, stablecoins, NFTs, and more, it can get confusing to understand the nuances of all these different cryptocurrencies.
In this guide, we’ll break down the major categories of web3 cryptos, analyzing real-world examples to shed light on the roles these assets play in powering web3 applications and services.
Native Blockchain Tokens – The Fuel of Decentralized Networks
Cryptos like Bitcoin’s BTC and Ethereum’s ETH represent the native tokens of their respective blockchains. They serve core functions like paying transaction fees or rewarding miners/stakers for maintaining network security.
These native blockchain tokens essentially act as “gas” to incentivize participation on a decentralized network. Their value comes from utility – without them, there is no economic drive to validate transactions and produce new blocks. That’s why they’re called gas tokens.
In many cases, the total supply of native blockchain tokens is capped or diminishes over time. This provably scarce design turns them into “hard money” assets analogous to precious metals.
Stablecoins – The On-Ramp to Practical Crypto Payments
Pure cryptocurrencies face a payments hurdle: price volatility. If the value of a crypto asset fluctuates wildly day-to-day, it becomes impractical as a means of exchange.
Enter stablecoins – cryptocurrencies designed to maintain a stable value, usually pegged to fiat currency like the US dollar. Leading stablecoins include USDT, USDC, and DAI.
Their steady valuation makes stablecoins ideal for payments and transfers. Merchants can price goods in stablecoins without concern of sudden price swings.
Adoption of stablecoins has skyrocketed, with their combined market cap soaring from $10B to over $150B between 2020 and 2022. They provide the on-ramp to practical mainstream crypto payments.
Utility Tokens – Unlocking Functionality Within DApps
Utility tokens grant users access to products or services within a specific web3 ecosystem. Holding a protocol’s utility tokens lets you participate in its network.
For example, BAT tokens allow Brave browser users to earn rewards for viewing ads and tip content creators. Filecoin’s FIL unlocks decentralized storage capabilities. Utility tokens are like API keys enabling functionality in web3 apps.
New utility token models like staking enable users to earn rewards for holding the token or providing liquidity. This incentivizes network effects and aligns user incentives.
Governance Tokens – Driving Community-Run DAOs
Governance tokens give holders voting rights to decide proposals affecting a project’s development and management. This enables decentralized autonomous organizations (DAOs) run transparently by the community.
Decentralized apps like Compound and Aave use governance tokens so users can vote on adding new asset pools or changing risk parameters. The community collectively controls the protocol’s future.
Voting participation is often proportional to governance token holdings. This aligns incentives for active decision-making in a project’s best interest.
NFTs – Establishing Digital Ownership and Scarcity
Non-fungible tokens (NFTs) have exploded in popularity as a way to represent unique, individually verifiable digital items like art, collectibles, avatars, and more on blockchain.
Unlike fungible tokens, each NFT is completely one-of-a-kind. This proves digital scarcity, allowing NFTs to carry intrinsic value as provably rare assets. The NFT market surpassed $41 billion in transaction volume in 2022.
Beyond just art, NFTs enable many revolutionary digital ownership models. NFT domain names like ENS establish identity. NFT tickets could reduce scalping. And NFT video game assets creates player-owned economies.
Lesser-Known Web3 Crypto Types
Beyond the major crypto categories above, some other niche web3 token types include:
- Security tokens – Blockchain representations of real-world assets like stocks, bonds, or property.
- Privacy coins – Cryptos like Monero designed to mask transaction details and sender identity.
- Soulbound tokens – Non-transferable tokens tied permanently to a wallet address.
These specialized cryptos fill particular needs around asset digitization, anonymity, identity, achievements, and credentials.
The Token Taxonomy Continues Evolving
As blockchain technology progresses, even more creative crypto models will emerge. But understanding the roles of today’s major web3 cryptos provides a solid foundation.
It’s clear these digital assets extend far beyond just “internet money.” Native tokens secure networks, stablecoins enable commerce, utility tokens power apps, NFTs create digital ownership, and governance tokens drive DAOs. Web3 cryptos are the lifeblood of an open, decentralized internet.