Nice to be part of the 8th week of season 3. I'm glad to be part of this week's lecture on "Understanding Tokens " by prof @reminiscence01. Below is my homework task.
1. What do you understand by Token and give an example of at least 5 tokens and identify the blockchain it is built on. (give at least 3 different Blockchains)
A token is a virtual currency or an asset unique to a cryptocurrency project that's created for a specific purpose. Its creation is achieved through the initial coin offering (ICO) and is mostly used for fund raising in crowd sales. Tokens are common to cryptocurrency world, as they represent an asset or stake of a crypto investor/trader used for a specific project in a blockchain.
These tokens represent a utility or service within the project's of a blockchain ecosystem. Tokens are not independent, as the exist or are built on an existing blockchain, and can be used as a voting rights or a governing token in the blockchain they are found.
These tokens are built in existing blockchain for the purpose of trading, for making purchases, storing value, developing cryptocurrency projects , and mostly importantly for investment purposes within the ecosystem. In a blockchain, the token owners own rights over some issues in the ecosystem, such as the rights of decision making and voting in the ecosystem. These tokens acquired by users of a platform are used in investing in the future of the firm with the hope that the firm will grow strong and yield great profits over time.
There are different types of Tokens in cryptocurrency world, some of which are; Reward token, Governance token, Utility token, Equity token, Security token, and Non-fungible token (NFT).
Examples of some tokens and the blockchain they are built on.
|TOKENS||BLOCKCHAIN BUILT ON|
|Bancor (BNT)||Ethereum blockchain|
|FTX Token||Binance blockchain|
|Terra MOON||Bitcoin blockchain|
|Avax AVAX||Avalanche blockchain|
2. What is the difference between a token and a coin?
|Tokens are blockchain dependent, as they are built on existing blockchains. Eg Tether token on Ethereum blockchain.||Coins are native cryptocurrency of a blockchain protocol.|
|Tokens are created to serve many purpose other than for trading alone.||Coins serve as money for digital transactions payments.|
|Tokens are easily created based on the existing blockchain.||Coins are more difficult to create, as requires skilled persons in solving complex mathematical problems to be able to create a coin, in a process known as mining.|
|Tokens are more popular and distributed through the initial coin offering (ICOs).||Coins are distributed through mining process.|
|Example of tokens are Tether, Uniswap, Bancor.||Example of coins are Bitcoin, Monero, Litecoin.|
3. Explain the different categories token listed below and explain its features.
Non-fungible token (NFT).
A utility token is an integral part of a blockchain protocol that enables users to access the services of that network. They can be used for payment within their respective ecosystems.
For instance, Ethereum is the most popular utility token example. Its decentralized nature and ability to serve as a means of payment make it a utility token. As an individual can deposit Tether for a smart contract to be performed on the Ethereum blockchain.
A security token is a unique digital token that can be issued on a permissioned blockchain, that represents a stake in an external organisation or asset. It can be used to secure an asset or enterprise.
Government firms and other business entities can issue security tokens to individuals that serve as bonds, stocks, and other things. Security token serve as a link between digital tokens and traditional assets. The holders of security tokens are given profits from projects in the blockchain, as they also possess some ownership rights in the network.
Equity token are almost similar to security token, they are just like the traditional assets but they possess some virtual documents known as digital certificate. This token is used for claiming or showing ownership of an asset in a blockchain.
Equity tokens are in forms of stock, companies, options contracts, and real estate. The holders of equity token also have ownership rights and entitlements to receive profits from projects in a blockchain network.
▪︎NON-FUNGIBLE TOKEN (NFT)
Non-fungible tokens are unique tokens in form of special collectibles( displayed virtually in a blockchain). These unique NFT items are not interchangeable with other items, as they are all unique and each item has its own value. An example of Non-fungible tokens is crypto kitties. NFT holders have ownership rights to their individual piece.
FEATURES OF A TOKEN
•Tokens are decentralized and are built on existing blockchains.
•Tokens are multiple purposes, as it is used for investment, as well as for trading purposes.
•Tokens are able to store value.
4. Make your own research and write extensively on any token you listed in question one. (Must include features of the token, the aim of the project, Use cases).
The Uniswap is one of the leading decentralized protocol built on Ethereum blockchain in 2918, created by the Ethereum developer Hayden Adams. Uniswap was first recognized as Unipeg and in September 2020 Uniswap further proceeded in creating its own native token of the platform called UNI. The UNI token functions on Ethereum network, since its an ERC-20 token. Uniswap token(UNI) is valid on Exchanges like; Coinbase, Binance, Pro etc. for trading purposes.
The Uniswap platform works with two smart contracts; an exchange contract and a factory contract. The exchange smart contract is used for swapping of token while the factory smart contract is used in introducing new tokens in the platform. These are automated computer programs that can perform specific tasks and also mitigate liquidity issues.
Uniswap is involved in a variety of projects in Ethereum blockchain, such as DeFi projects, Smart Contracts, and
Decentralized aggregators. The UNI token was launched with a total supply of 1 billion mintedat Genesis, out of which 170million is currently in circulation, of which presently the Uniswap token is distributed as follows;
•60% of Uniswap token to users
•21.51% of Uniswap token to team members.
•17.8% of Uniswap token to investors.
•0.69% of Uniswap token to advisors.
AIM OF UNISWAP PROJECT
Uniswap platform is involved in many projects, and the aims of these projects are;
•Uniswap as a decentralized protocol, is a open source that is able to build a vast range of platform-specific DeFi tools such as wallets, APIs, and protocols, that expand the blockchain functionality.
• Uniswap helps in solving liquidity issues, as it provides liquidity for a vast range of decentralized aggregator protocol, which help traders find the best prices on the platform
•Developers can use Uniswap code to install a range of experimental ideas in the platform. Such examples include the Unisocks sales portal.
• Uniswap protocol aims in growing a strong and stable community and also creating sustainability in the platform.
FEATURES OF UNISWAP
•It is a decentralized protocol built on Ether
eum blockchain for swapping ERC-20 token.
•Its native token is UNI, and is tradeable in exchange platforms.
•Uniswap operates on Exchange contract and the Factory contract.
•Uniswap works with a unique system
known as the Automated Market
• Uniswap protocol has a swapping feature, where users can swap tokens, also add a token to a pool to get rewards.
FUNDAMENTAL ANALYSIS OF Uniswap token(UNI)
I'll be giving a fundamental analysis of Uniswap token (UNI) from coinmarketcap.com. As at the time of writing this post below are the fundamental analysis of UNI token.
|Market Cap/TVL Ratio||3.32%|
It is pertinent to understand as a trader, investors or Newbie to cryptocurrency technology to know what Tokens are, how they are created and different Blockchains on which they are built on, to aid in crypto trading in making the best of decisions. Also to understand that tokens and coins are different, although both are used in cryptocurrency ecosystem.
Thanks Prof @reminiscence01 for an enlightening lecture this week. Warm regards. Thanks for reading through.