With the SEC recently suing Coinbase alleging that almost all tokens are securities, I’m seeing renewed discussion and misconception about what tokens are and what they aren’t. Tokens are a simple digital primitive and can serve a multitude of functions.
We’ve seen three dominant uses of tokens to date: gas tokens, governance tokens, and synthetic assets.
A gas token is a specific token chosen by a blockchain as the form of payment to process a transaction. ETH is the gas token of Ethereum, and SOL is the gas token of Solana. For example, when a user wants to transact on Ethereum, it must pay ETH in gas to do so. Gas tokens exist because blockchains are decentralized systems in which disparate entities are paid to perform specific functions for the blockchain. For example, miners and validators are rewarded tokens for correctly verifying transactions and slashed tokens for attempting to incorrectly process them. In addition to coordinating miners and validators on L1 networks, gas tokens will likely also apply to L2 sequencers and provers that aspire to decentralize in the future.
A governance token refers to a token used to manage a project. Typically, the aspects of the project that can be voted on are pre-determined. For example, when the UNI token launched to govern Uniswap v2, tokenholders were granted control over the governance process, treasury, protocol fee switch, uniswap.eth ENS, uniswap Default List, and SOCKS liquidity tokens. Governance tokens can be used to manage both core blockchains (e.g. Cosmos Hub or Arbitrum) and protocols built on blockchains (e.g. Uniswap or Compound). Governance tokens can also be used to govern a combination of properties regardless of whether the project is a core blockchain or a protocol – including treasuries (i.e. to invest or distribute it), fee switches (i.e. to turn it on and for which assets), and core protocol logic – as well as parameters – including fee rates (i.e. for LPs on a decentralized exchange) and take rates (i.e. to accrue to the protocol treasury).
A synthetic asset is simply a digital representation of something. It can refer to digitally native goods (e.g. digital art), digital representations of assets (e.g. stablecoins), and digital memberships (e.g. restaurants), to name a few. The vision for synthetic assets is to help bring internet scale markets to an asset that would otherwise be structurally constrained. For art and restaurants, the market is limited by geography; for stablecoins, the market is limited by complex legacy financial systems.
It’s clear that even in these early innings, a token doesn’t serve a single purpose like a share in a corporation does. A token is an unopinionated technology and what it does and does not do depends on what it was designed and programmed to do or not do.
While the above are three of the most prevalent uses for tokens today, we are simply scratching the surface of what this technology can do. If we paint a broad brush to say all tokens are [x], we’re missing the point and forgoing the opportunity for this technology to thrive in the ways it can be most valuable.
Views are my own and not investment advice. Haun Ventures may have previously held, currently hold, or will in the future hold tokens mentioned in this post. See https://www.haun.co/disclosures.
Chris AhnEconomies of Scale
There are two mechanisms we know of where a business becomes more effective with greater scale. The first is network effects, and the second is economies of scale. A social network is the classic example of a network effect in action. If I am the only person in the network, it is not very useful; if 10 of my friends are in the network, it is more useful; and if all of my current and potential friends are in the network, it is very useful. Network effects are powerful because each incremental ...
Chris Ahn99 Cent Apps
Starting with the emergence of friend.tech in the fall of last year, I believe we’ve left the “infrastructure phase” of crypto for another “application phase.” This time, I believe we’ve entered the “99 cent app” phase of crypto. By “99 cent apps” I’m referring back to the late 2000s / early 2010s shortly after the launch of Apple’s App Store and Google’s Play Store. During that period, many of us have memories of checking the App / Play Store to see what was new and purchasing apps and widge...
Share Dialog
With the SEC recently suing Coinbase alleging that almost all tokens are securities, I’m seeing renewed discussion and misconception about what tokens are and what they aren’t. Tokens are a simple digital primitive and can serve a multitude of functions.
We’ve seen three dominant uses of tokens to date: gas tokens, governance tokens, and synthetic assets.
A gas token is a specific token chosen by a blockchain as the form of payment to process a transaction. ETH is the gas token of Ethereum, and SOL is the gas token of Solana. For example, when a user wants to transact on Ethereum, it must pay ETH in gas to do so. Gas tokens exist because blockchains are decentralized systems in which disparate entities are paid to perform specific functions for the blockchain. For example, miners and validators are rewarded tokens for correctly verifying transactions and slashed tokens for attempting to incorrectly process them. In addition to coordinating miners and validators on L1 networks, gas tokens will likely also apply to L2 sequencers and provers that aspire to decentralize in the future.
A governance token refers to a token used to manage a project. Typically, the aspects of the project that can be voted on are pre-determined. For example, when the UNI token launched to govern Uniswap v2, tokenholders were granted control over the governance process, treasury, protocol fee switch, uniswap.eth ENS, uniswap Default List, and SOCKS liquidity tokens. Governance tokens can be used to manage both core blockchains (e.g. Cosmos Hub or Arbitrum) and protocols built on blockchains (e.g. Uniswap or Compound). Governance tokens can also be used to govern a combination of properties regardless of whether the project is a core blockchain or a protocol – including treasuries (i.e. to invest or distribute it), fee switches (i.e. to turn it on and for which assets), and core protocol logic – as well as parameters – including fee rates (i.e. for LPs on a decentralized exchange) and take rates (i.e. to accrue to the protocol treasury).
A synthetic asset is simply a digital representation of something. It can refer to digitally native goods (e.g. digital art), digital representations of assets (e.g. stablecoins), and digital memberships (e.g. restaurants), to name a few. The vision for synthetic assets is to help bring internet scale markets to an asset that would otherwise be structurally constrained. For art and restaurants, the market is limited by geography; for stablecoins, the market is limited by complex legacy financial systems.
It’s clear that even in these early innings, a token doesn’t serve a single purpose like a share in a corporation does. A token is an unopinionated technology and what it does and does not do depends on what it was designed and programmed to do or not do.
While the above are three of the most prevalent uses for tokens today, we are simply scratching the surface of what this technology can do. If we paint a broad brush to say all tokens are [x], we’re missing the point and forgoing the opportunity for this technology to thrive in the ways it can be most valuable.
Views are my own and not investment advice. Haun Ventures may have previously held, currently hold, or will in the future hold tokens mentioned in this post. See https://www.haun.co/disclosures.
Chris AhnEconomies of Scale
There are two mechanisms we know of where a business becomes more effective with greater scale. The first is network effects, and the second is economies of scale. A social network is the classic example of a network effect in action. If I am the only person in the network, it is not very useful; if 10 of my friends are in the network, it is more useful; and if all of my current and potential friends are in the network, it is very useful. Network effects are powerful because each incremental ...
Chris Ahn99 Cent Apps
Starting with the emergence of friend.tech in the fall of last year, I believe we’ve left the “infrastructure phase” of crypto for another “application phase.” This time, I believe we’ve entered the “99 cent app” phase of crypto. By “99 cent apps” I’m referring back to the late 2000s / early 2010s shortly after the launch of Apple’s App Store and Google’s Play Store. During that period, many of us have memories of checking the App / Play Store to see what was new and purchasing apps and widge...
Share Dialog
Subscribe to Chris Ahn
Subscribe to Chris Ahn
<100 subscribers
<100 subscribers
No activity yet