Beyond just digital currencies like Bitcoin, cryptocurrencies have expanded into numerous asset types and subcategories that serve different utilities. This article will provide an overview of the major crypto asset classifications that make up this diverse emerging ecosystem.
Cryptocurrency coins like Bitcoin and Ether are digital money transmitted and stored on their native blockchain networks. Coins act as a medium of exchange and a store of value. Their creation and movement is recorded on a decentralized public ledger.
Coins incentivize network participation through built-in economic rewards. They can be traded on exchanges, used for payments, staked for yield, and more. Most coins are fungible.
Stablecoins are cryptocurrencies price-pegged to external assets like the US dollar to reduce volatility. This provides steady valuations for payments, trading, and lending. Popular stablecoins include Tether (USDT), USD Coin (USDC), and Dai (DAI).
Asset-backed stablecoins hold reserves in the pegged asset to maintain the fixed price. Algorithmic stablecoins use supply contraction/expansion and bonding curves to keep valuations stable.
Security tokens are cryptocurrencies that derive value from external assets like stocks, bonds, real estate and commodities. They represent fractional ownership in the underlying asset.
For example, a gold-backed security token gives holders ownership rights to a set quantity of gold stored in a vault. Regulations generally treat security tokens as securities.
Utility tokens provide access to a specific product or service on a blockchain network. They are like API keys granting holders the ability to interact with protocol features. Utility tokens are non-fungible in nature.
For example, Ethereum network gas fees are paid using ETH utility tokens. Filecoin mining requires FIL utility tokens to participate. Utility tokens enable ecosystem activity.
Governance tokens allow holders to vote on protocol changes like upgrades, policies, fees, etc. They are actively involved in steering the cryptocurrency’s evolution through consensus.
MakerDAO’s MKR token lets holders vote on risk parameters for the DAI stablecoin. Uniswap’s UNI empowers users to determine how pooled liquidity is managed.
Non-Fungible Tokens (NFTs)
Non-fungible tokens are unique cryptographic assets with distinct identification codes and metadata that differentiate them from other tokens. NFTs often represent ownership of digital or physical collectibles.
NFTs provide provenance for digital art, gaming items, licenses, deeds, tickets and other verifiable assets. Ownership is managed on-chain. NFT markets are expanding rapidly.
Liquidity tokens represent a user’s share of pooled reserves on decentralized exchanges like Uniswap or Curve. Holders earn trading fees based on their share of the pool.
Liquidity tokens like UNI-V2 or 3pool allow portable liquidity that can move between exchanges. They are central to decentralized exchange operations.
Rebase tokens use token rebasing to maintain a constant real-time price. Holders’ balances rise or fall with expansions and contractions of the entire supply.
For example, Ampleforth’s supply changes daily to target a $1 price. Rebasing aims to counteract volatility.
Fund tokens represent an ownership share in an on-chain asset portfolio. Holders benefit from the aggregated performance of assets held in the fund.
Index Coop’s DPI token provides exposure to an index of top DeFi tokens. Other fund tokens offer exposure to NFTs, metaverse assets, and other emerging crypto markets.
Algorithmic stablecoins hold no reserves. They use bonding curves and supply adjustments to maintain a stable peg. If price declines, supply contracts. If price rises, supply expands.
For example, Basis Cash expands and contracts supply using an algorithmic central bank model to maintain the peg to $1. Backing assets are not required.
Wrapped tokens are proxies that represent assets from one blockchain network on a separate network. This allows cross-chain compatibility.
For example, Wrapped Bitcoin (WBTC) is an ERC-20 token that represents Bitcoin on the Ethereum network. This brings Bitcoin’s liquidity into Ethereum DeFi.
Vesting tokens have locked distributions that are gradually unlocked to recipients over time according to a programmed schedule. This incentivizes long-term holdings.
For example, a token may vest linearly over 24 months. Recipients can only access a fraction of total allocation monthly as it unlocks. Vesting deters short-term selling.
Beyond just digital currencies, crypto encompasses a diverse array of asset types including stablecoins, security tokens, utility tokens, governance tokens, NFT collectibles, and more. Each provides unique functionality, property rights, and incentivization structures as blockchain adoption permeates finance and society more broadly.