If you're exploring investment opportunities involving crypto assets, it's essential to understand the various types available. Below is a breakdown of the primary categories:
Native Crypto Assets
Native crypto assets, often called "coins," are integral to specific blockchains. These assets serve as a store of value secured through cryptography and rely on encryption for data storage, verification, and transmission. As a result, they're frequently labeled as "cryptocurrencies."
Key Characteristics:
- Means of Exchange: Similar to traditional currencies, they can facilitate transactions.
- Decentralization: Unlike fiat currencies, they aren't issued by central banks.
- Volatility: Prices are highly speculative and prone to sharp fluctuations.
Examples include Bitcoin (BTC) and Ether (ETH).
Tokens
Tokens are built on existing blockchains and rely on them for functionality. They serve diverse purposes, such as enabling utility in decentralized applications (dApps) or granting governance rights.
Categories of Tokens:
1. Non-Fungible Tokens (NFTs)
NFTs are unique digital assets with distinct identification codes and metadata. They cannot be exchanged on a like-for-like basis.
Features:
- Uniqueness: Each NFT has distinct attributes and value.
- Provenance Tracking: NFTs can document ownership and origin.
- Smart Contracts: Often linked to automated conditions (e.g., royalty payments).
2. Stablecoins
Stablecoins aim to maintain a stable value relative to reference assets like fiat currencies or commodities.
Types:
- Asset-Backed: Pegged to reserves (e.g., USD).
- Algorithmic: Use smart contracts to stabilize price.
Risks: Include depegging and cybersecurity vulnerabilities.
3. Tokenized Securities
Traditional securities (stocks, bonds) issued or transferred via blockchain.
Methods:
- On-Chain Registry: Issuers maintain records on the blockchain.
- Intermediary-Held: Tokens represent beneficial ownership.
Crypto Asset Offerings
Developers often launch coin or token offerings to raise capital. In the U.S., these may be subject to securities regulations.
Common Offerings:
- Initial Coin Offering (ICO): Direct sale to investors.
- Initial Exchange Offering (IEO): Issued via crypto platforms.
- Security Token Offering (STO): Explicitly marketed as securities.
Due Diligence: Always verify offering documents and use FINRA BrokerCheck to research involved parties.
FAQs
1. What distinguishes native crypto assets from tokens?
Native assets are blockchain-specific (e.g., Bitcoin), while tokens are built atop existing blockchains (e.g., ERC-20 tokens).
2. Are stablecoins truly stable?
Not always. They can depeg from their reference value due to market or operational risks.
3. Can NFTs represent physical assets?
Yes, NFTs can be tied to real-world assets like art or real estate, though ownership rights vary.