As token-based network models become increasingly active and innovative, developers are contemplating how to differentiate between various types of tokens—and which token best suits their business. Meanwhile, consumers and policymakers are also trying to better understand the role and risks of blockchain tokens in applications.

To help clarify token categories, this article provides definitions, examples, and a classification framework to understand the seven types of tokens that developers most commonly build: Network Tokens, Security Tokens, Company-Backed Tokens, Arcade Tokens, Collectible Tokens, Asset-Backed Tokens, and Memecoins.

The essence of tokens is to enable true digital ownership. More precisely, a blockchain is a decentralized computer composed of individual computers maintaining a shared ledger—a "cloud computer" in practice. Tokens are data records on these ledgers that track quantities, permissions, and other metadata. Crucially, these data records can only be altered according to the blockchain's encoded rules, which can be used to grant enforceable rights.

Within this technological framework, there are many details that affect design, functionality, value, and risk:

Programmability

Since tokens are embedded in software, they can be programmed to represent almost anything—any digital form or property record. This means tokens can be designed as Bitcoin-like digital stores of value, Ethereum-like productive and consumptive assets, digital trading cards and game items as collectibles, payment stablecoins like USDC, or even digitized stocks.

Rights and Circulation Attributes

Some tokens grant various rights (e.g., voting rights or economic interests), while others only allow the use of products or network services. Some tokens can be freely transferred between users, while others are restricted; some tokens are fungible, meaning all units are equivalent, while others are non-fungible, meaning they represent unique individual assets (unique, like trading cards or even the Mona Lisa).

These design choices are crucial because they determine whether a token is a good store of value or medium of exchange; whether it is a productive asset with inherent functionality and/or economic value; or whether it is essentially a speculative instrument of no intrinsic value. Additionally, a token's characteristics directly affect its legal classification.

Therefore, whether you are a blockchain project developer, an investor, or an ordinary user of tokens, understanding token types is crucial—never confuse Memecoins with network tokens. This article also aims to help investors eliminate such confusion.

Network Tokens

Network tokens are essentially closely related to the programmatic functions of blockchains or smart contract protocols, and their value also stems from this. Network tokens typically have built-in utility; they can be used for network operations, consensus-reaching, coordinating protocol upgrades, or incentivizing network operation. The networks associated with these tokens usually (and in most cases should) include economic mechanisms that drive token value. These include programmatic buybacks, dividends, and other changes to the token's total supply through token creation ("faucets") or destruction ("sinks") to introduce inflationary and deflationary pressures to serve the network.

Network tokens can have trust dependencies similar to commodities and securities. Recognizing this, the SEC's 2019 framework and FIT21 both stipulate that network tokens will be excluded from U.S. securities law when these trust dependencies are mitigated by the decentralization of the underlying network. The core essence of decentralization is that the system can operate without human control (individuals, companies, or management teams).

Network tokens are best suited for bootstrapping the creation of new networks, allocating ownership or control of the network to its users, and/or ensuring that the network can self-fund to achieve continuous and secure operations. Examples of network tokens include BTC, ETH, DOGE, SOL, and UNI. In the context of smart contract protocols like Uniswap and Aave, network tokens are sometimes also referred to as "protocol tokens" or "application tokens."

Company-Backed Tokens

Company-backed tokens are intrinsically linked to off-chain applications, products, or services operated by a company (or other centralized organization). The value of such tokens stems from this, and it essentially depends on the continuous operation of a centralized entity.

Like network tokens, company-backed tokens may use blockchain and smart contracts (e.g., for facilitating payments). However, because they are primarily related to off-chain operations rather than network ownership, the company can unilaterally control their issuance, utility, and value. Similar to "arcade tokens" (described below), company-backed tokens typically have their own embedded utility. Unlike "arcade tokens," however, company-backed tokens are speculative.

Given these characteristics—although company-backed tokens do not grant holders explicit rights, ownership, or interests like traditional securities—they have trust dependencies similar to securities: their value essentially depends on a system controlled by individuals, companies, or management teams. Therefore, although company-backed tokens themselves are not securities, their trading may be subject to U.S. securities law when such tokens attract investment.

Company-backed tokens may become a legitimate category. However, they have historically been used in the U.S. primarily for non-regulatory evasion of securities law—raising investment for company-controlled applications, products, or services, potentially acting as a substitute for the company's equity or profit interests. Examples of company-backed tokens include FTT, which acts as a profit interest in the FTX exchange, or a hypothetical cloud service provider issuing tokens that allow holders to access cloud services and receive a portion of on-chain revenue from such services. Additionally, BNB is a typical example of a company-backed token, which evolved into a network token with the launch of the Binance Smart Chain. Company-backed tokens are sometimes referred to as "startup tokens," or given their link to off-chain applications, also called "application tokens."

So, what is the specific distinction between network tokens and company-backed tokens?

Distinguishing between network tokens and company-backed tokens is not straightforward, as both types of tokens may have utility and derive some value from on-chain blockchain functions and off-chain company operations. However, making this distinction is necessary: network tokens and company-backed tokens pose entirely different risks to holders and should be treated differently under applicable law. So, where does the line lie?

The only key characteristic that distinguishes network tokens from company-backed tokens is that the value of network tokens primarily stems from blockchain or smart contract protocols. This feature is crucial because these systems can operate in an autonomous and decentralized manner, without human intervention or control. It is precisely for this reason that blockchain-based networks can truly be open: the network effects of the system are captured on-chain and belong to token holders, and these network effects can, in principle, be accessed and extended by anyone.

In contrast, the value of company-backed tokens primarily comes from off-chain systems or sources that cannot operate autonomously—that is, centralized systems that require human intervention and control. This association is often explicit, such as when token prices are tied to the profits of off-chain applications, products, or services, or when tokens have utility within these systems. But it can also be implicit—for example, a token with no actual utility but backed by a company's brand might imply that the company will give it value.

In either case, if a token is intrinsically linked to a system that cannot operate autonomously and its value primarily (or is expected to) stem from that system, then it is a company-backed token. Because of the lack of autonomy, any related network (even if seemingly open) is effectively closed, much like a Web2 social network controlled by a single company, and thus the network effects of the token ultimately belong to the company controlling the system, not the users.

The difference in network design openness (closed vs. open) has real economic and regulatory consequences.

Network tokens are associated with open networks that no one controls, and thus are more like commodities: their operation makes it impossible for any party to unilaterally influence or construct risks related to the token. This elimination of trust dependency distinguishes network tokens from securities. If the network drives value to the token through its functionality (e.g., programmatic buybacks and destruction of tokens), this further reinforces the trustless characteristic.

Company-backed tokens, on the other hand, have trust dependencies similar to securities: if the value of a token comes from a closed network controlled by a single entity, that entity can unilaterally change the token's expected value. For example, the controlling entity can arbitrarily change the token's utility, issue more tokens, or even shut down the entire system. This indicates that when people invest in company-backed tokens, securities law should apply.

Two case examples can further illustrate this distinction:

ETH is a typical network token. It allows holders to transact on the Ethereum network and provides economic rights to holders. The network is decentralized and operates autonomously (without control by individuals or management teams). Therefore, the U.S. SEC has explicitly determined that securities law does not apply to ETH.

FTT, on the other hand, is a typical company-backed token. Its value entirely depends on the continuous operation of the FTX exchange, which is a centralized exchange operated and controlled by a company. FTX Inc. repurchases FTT from exchange profits, driving its economic value. Therefore, FTT is essentially a profit interest in FTX—its utility and value are controlled

As token-based network models become increasingly active and innovative, developers are contemplating how to differentiate between various types of tokens—and which token best suits their business. Meanwhile, consumers and policymakers are also trying to better understand the role and risks of blockchain tokens in applications.

To help clarify token categories, this article provides definitions, examples, and a classification framework to understand the seven types of tokens that developers most commonly build: Network Tokens, Security Tokens, Company-Backed Tokens, Arcade Tokens, Collectible Tokens, Asset-Backed Tokens, and Memecoins.

The essence of tokens is to enable true digital ownership. More precisely, a blockchain is a decentralized computer composed of individual computers maintaining a shared ledger—a "cloud computer" in practice. Tokens are data records on these ledgers that track quantities, permissions, and other metadata. Crucially, these data records can only be altered according to the blockchain's encoded rules, which can be used to grant enforceable rights.

Within this technological framework, there are many details that affect design, functionality, value, and risk:

Programmability

Since tokens are embedded in software, they can be programmed to represent almost anything—any digital form or property record. This means tokens can be designed as Bitcoin-like digital stores of value, Ethereum-like productive and consumptive assets, digital trading cards and game items as collectibles, payment stablecoins like USDC, or even digitized stocks.

Rights and Circulation Attributes

Some tokens grant various rights (e.g., voting rights or economic interests), while others only allow the use of products or network services. Some tokens can be freely transferred between users, while others are restricted; some tokens are fungible, meaning all units are equivalent, while others are non-fungible, meaning they represent unique individual assets (unique, like trading cards or even the Mona Lisa).

These design choices are crucial because they determine whether a token is a good store of value or medium of exchange; whether it is a productive asset with inherent functionality and/or economic value; or whether it is essentially a speculative instrument of no intrinsic value. Additionally, a token's characteristics directly affect its legal classification.

Therefore, whether you are a blockchain project developer, an investor, or an ordinary user of tokens, understanding token types is crucial—never confuse Memecoins with network tokens. This article also aims to help investors eliminate such confusion.

Network Tokens

Network tokens are essentially closely related to the programmatic functions of blockchains or smart contract protocols, and their value also stems from this. Network tokens typically have built-in utility; they can be used for network operations, consensus-reaching, coordinating protocol upgrades, or incentivizing network operation. The networks associated with these tokens usually (and in most cases should) include economic mechanisms that drive token value. These include programmatic buybacks, dividends, and other changes to the token's total supply through token creation ("faucets") or destruction ("sinks") to introduce inflationary and deflationary pressures to serve the network.

Network tokens can have trust dependencies similar to commodities and securities. Recognizing this, the SEC's 2019 framework and FIT21 both stipulate that network tokens will be excluded from U.S. securities law when these trust dependencies are mitigated by the decentralization of the underlying network. The core essence of decentralization is that the system can operate without human control (individuals, companies, or management teams).

Network tokens are best suited for bootstrapping the creation of new networks, allocating ownership or control of the network to its users, and/or ensuring that the network can self-fund to achieve continuous and secure operations. Examples of network tokens include BTC, ETH, DOGE, SOL, and UNI. In the context of smart contract protocols like Uniswap and Aave, network tokens are sometimes also referred to as "protocol tokens" or "application tokens."

Company-Backed Tokens

Company-backed tokens are intrinsically linked to off-chain applications, products, or services operated by a company (or other centralized organization). The value of such tokens stems from this, and it essentially depends on the continuous operation of a centralized entity.

Like network tokens, company-backed tokens may use blockchain and smart contracts (e.g., for facilitating payments). However, because they are primarily related to off-chain operations rather than network ownership, the company can unilaterally control their issuance, utility, and value. Similar to "arcade tokens" (described below), company-backed tokens typically have their own embedded utility. Unlike "arcade tokens," however, company-backed tokens are speculative.

Given these characteristics—although company-backed tokens do not grant holders explicit rights, ownership, or interests like traditional securities—they have trust dependencies similar to securities: their value essentially depends on a system controlled by individuals, companies, or management teams. Therefore, although company-backed tokens themselves are not securities, their trading may be subject to U.S. securities law when such tokens attract investment.

Company-backed tokens may become a legitimate category. However, they have historically been used in the U.S. primarily for non-regulatory evasion of securities law—raising investment for company-controlled applications, products, or services, potentially acting as a substitute for the company's equity or profit interests. Examples of company-backed tokens include FTT, which acts as a profit interest in the FTX exchange, or a hypothetical cloud service provider issuing tokens that allow holders to access cloud services and receive a portion of on-chain revenue from such services. Additionally, BNB is a typical example of a company-backed token, which evolved into a network token with the launch of the Binance Smart Chain. Company-backed tokens are sometimes referred to as "startup tokens," or given their link to off-chain applications, also called "application tokens."

So, what is the specific distinction between network tokens and company-backed tokens?

Distinguishing between network tokens and company-backed tokens is not straightforward, as both types of tokens may have utility and derive some value from on-chain blockchain functions and off-chain company operations. However, making this distinction is necessary: network tokens and company-backed tokens pose entirely different risks to holders and should be treated differently under applicable law. So, where does the line lie?

The only key characteristic that distinguishes network tokens from company-backed tokens is that the value of network tokens primarily stems from blockchain or smart contract protocols. This feature is crucial because these systems can operate in an autonomous and decentralized manner, without human intervention or control. It is precisely for this reason that blockchain-based networks can truly be open: the network effects of the system are captured on-chain and belong to token holders, and these network effects can, in principle, be accessed and extended by anyone.

In contrast, the value of company-backed tokens primarily comes from off-chain systems or sources that cannot operate autonomously—that is, centralized systems that require human intervention and control. This association is often explicit, such as when token prices are tied to the profits of off-chain applications, products, or services, or when tokens have utility within these systems. But it can also be implicit—for example, a token with no actual utility but backed by a company's brand might imply that the company will give it value.

In either case, if a token is intrinsically linked to a system that cannot operate autonomously and its value primarily (or is expected to) stem from that system, then it is a company-backed token. Because of the lack of autonomy, any related network (even if seemingly open) is effectively closed, much like a Web2 social network controlled by a single company, and thus the network effects of the token ultimately belong to the company controlling the system, not the users.

The difference in network design openness (closed vs. open) has real economic and regulatory consequences.

Network tokens are associated with open networks that no one controls, and thus are more like commodities: their operation makes it impossible for any party to unilaterally influence or construct risks related to the token. This elimination of trust dependency distinguishes network tokens from securities. If the network drives value to the token through its functionality (e.g., programmatic buybacks and destruction of tokens), this further reinforces the trustless characteristic.

Company-backed tokens, on the other hand, have trust dependencies similar to securities: if the value of a token comes from a closed network controlled by a single entity, that entity can unilaterally change the token's expected value. For example, the controlling entity can arbitrarily change the token's utility, issue more tokens, or even shut down the entire system. This indicates that when people invest in company-backed tokens, securities law should apply.

Two case examples can further illustrate this distinction:

ETH is a typical network token. It allows holders to transact on the Ethereum network and provides economic rights to holders. The network is decentralized and operates autonomously (without control by individuals or management teams). Therefore, the U.S. SEC has explicitly determined that securities law does not apply to ETH.

FTT, on the other hand, is a typical company-backed token. Its value entirely depends on the continuous operation of the FTX exchange, which is a centralized exchange operated and controlled by a company. FTX Inc. repurchases FTT from exchange profits, driving its economic value. Therefore, FTT is essentially a profit interest in FTX—its utility and value are controlled