It seems like everything is a token these days. Let’s make it easy and break things down into 4 primary token functions — the SUMS. Mainly, security, utility, money and stable token.
There are many ways you can define the specific token functions, especially from a legal standpoint, and start specifying what the token can and cannot do. But this post is not about that. This post is about the general high-level functions a token can have:
- Stable token
A token is a security token when it represents an underlying asset. Traditionally you determine it using a Howey Test. Just think of it as a token that presents the value of an asset. It could be a tokenised stock, where you own a stock equity of a company. It could be a tokenised property, where you own part of the property. Ultimate, it is a digital representation of the underlying asset. And the fun part is that you can trade it!
A token is a utility token when it is used to access the platform. Think of your university giving you credit to book the university’s facilities. Or perhaps the airlines frequent flyer program, where you can access the hotel and car rental partners, and upgrade your flights. These are tokens used to access the platform (university facilities) or network (network of airlines partners). They are used to interact between people in the ecosystem.
Money is basically currency. We are talking about liquid money, where you make payments with. The money has 3 main purposes: store of value, unit of account and medium of exchange. Think of USD, GBP, EUR. With money, there is even more sub-categories. You have physical fiat money issued by a country’s central bank and digital money. In digital money, you have cryptocurrency (BTC), virtual money (World of Warcraft’s money) and even central bank digital currency CBDC (central bank issued digital money).
Money is a huge topic. I’ll get into that in the near future.
This is a new category that I included recently, after speaking to Peter DeMeo from IBM and Kevin Talbot from Delchain. Stable Token can have features of security, utility and money, but the main feature is that it is stable by pegging towards something. So, I created a category on its own.
Should stable token be a category on its own? Let me know what you think!