A token is a cryptocurrency that exists as a smart contract on someone else’s blockchain rather than having its own native chain. USDC is a token — it lives as a Solidity contract on Ethereum (and on copies of that contract deployed to many other chains). LINK is a token. UNI, AAVE, SHIB, PEPE, and the vast majority of other cryptocurrencies you have heard of are tokens, as opposed to Bitcoin, Ether, SOL, or ADA, which are native coins of their own chains. The distinction matters because tokens inherit the security of their host chain, can be created by anyone with basic development skills, and use standardised interfaces that make them composable with every other contract on the same chain.
The word “coin” is sometimes reserved for native assets (BTC, ETH, SOL) and “token” for contract-based assets (USDC, LINK, UNI), but this distinction is not rigorously followed and the two words are often used interchangeably in casual conversation. What is consistent is that token creation is cheap and fast compared to launching a new chain — you can deploy an ERC-20 contract in a few minutes for a few dollars of gas, whereas launching a new L1 is a multi-million-dollar engineering effort. This asymmetry is why the number of tokens is enormous and the number of chains, while large, is far smaller.
The Standard Interfaces
The thing that makes tokens work as a primitive is the existence of standardised interfaces that let any wallet, exchange, or protocol handle them without custom code. On Ethereum, the dominant standards are:
ERC-20 for fungible tokens. Defines functions like transfer, balanceOf, approve, and events like Transfer. Any contract that implements this interface is automatically supported by MetaMask, Uniswap, every block explorer, and essentially every piece of Ethereum infrastructure. ERC-20 launched in late 2015 and has been the most impactful standard in the entire Ethereum ecosystem.
ERC-721 for non-fungible tokens. Each token has a unique ID, and the contract tracks ownership per-ID rather than per-balance. Used for NFTs across almost every collection on Ethereum.
ERC-1155 for multi-token contracts that can hold both fungible and non-fungible tokens in a single contract. Useful for games and marketplaces where one contract needs to manage many different token types efficiently.
Other chains have their own standards — SPL on Solana, TRC-20 on Tron, BEP-20 on BNB Chain — but most of them are conceptually similar to ERC-20, and the cross-chain token landscape has converged on a small set of patterns that work well enough everywhere.
What Tokens Are Used For
The use cases span almost the entire purpose-space of crypto.
Stablecoins are tokens whose value is pegged to an external asset (usually the US dollar). USDT and USDC are by far the biggest by supply, and they are the dominant medium of exchange for on-chain activity. Stablecoins are the most economically significant token category and represent a substantial majority of everyday on-chain value transfer.
Governance tokens give holders voting rights over DeFi protocols and DAOs. UNI, AAVE, MKR (now SKY), and COMP are the canonical examples. The economic value of governance tokens is debatable and varies enormously depending on whether the token actually controls meaningful decisions and whether it captures any protocol revenue.
Utility tokens are supposed to be required for some specific function — paying fees on a protocol, accessing a service, running a node. The category has become suspect over the years because most “utility tokens” turned out to be speculative vehicles with a utility justification bolted on for regulatory reasons, but there are genuine cases (LINK for Chainlink oracle payments, GRT for The Graph query payments) where the token does serve a real purpose in its ecosystem.
Wrapped assets are tokens that represent another asset on a different chain. WBTC is wrapped Bitcoin on Ethereum. wETH is wrapped Ether (used to make ETH behave like an ERC-20 for contract compatibility). Every bridged asset on every chain is, at its core, a wrapped-asset token issued by some bridge contract.
Memecoins are tokens whose primary purpose is to be traded for entertainment and speculation, with no underlying utility. DOGE, SHIB, PEPE, BONK, WIF, TRUMP — the category is enormous and, during meme-token seasons, can generate more trading volume than everything else combined. Memecoins are a legitimate niche in crypto culture, though the overwhelming majority of individual memecoins go to zero.
The “Most Tokens Are Garbage” Problem
An unavoidable truth about the token ecosystem is that the quality distribution is extremely skewed. Of the hundreds of thousands of tokens that have been deployed, the vast majority are abandoned, failed, or outright scams. Trackers like CoinGecko and CoinMarketCap list around 10,000-15,000 “active” tokens at any given time, but even among those, a substantial fraction have no real usage, no development activity, and no reason to exist beyond trying to capture speculative interest.
The ease of token creation is both the source of the ecosystem’s dynamism and the source of its noise. Anyone with an idea can tokenise it and try to bootstrap a community; the failure rate is high, but the occasional success (Uniswap, Chainlink, Lido, ETH itself) justifies the ongoing experimentation. For anyone evaluating individual tokens, the default assumption should be that a random token with no established track record is more likely to be worthless than valuable, and the burden of proof is on the token to demonstrate that it is an exception. This is the opposite of how most retail speculators approach the market, and it is one of the main reasons retail participation in token markets usually ends in losses.