In Aristotle’s formal logic, thought is organized in a manner very different from that of the Platonic dialogue. In this formal logic, thought is indifferent toward its objects. Whether they are mental or physical, whether they pertain to society or to nature, they become subject to the same general laws of organization, calculation, and conclusion but they do so as fungible signs or symbols, in abstraction from their particular “substance.” This general quality (quantitative quality) is the precondition of law and order in logic as well as in society the price of universal control.

— — Herbert Marcuse

I choose to start by citing Herbert Marcuse, a German-American philosopher, sociologist, and political theorist. The above sentence basically reveals an important problem in the field of Western philosophy, the universal problem, that is, whether there is a certain truth to explain everything. In my opinion, this problem stems from the emergence of fungible items such as money, which is a way of describing the world. In previous articles, we explored some basic questions about Web3, such as the core value of Web3 and the significance of digital assets for Web3, etc. I hope these discussions can help you build a unified understanding of Web3 and realize the importance of digital asset innovation for Web3. In the next few articles, we will discuss the development status of Web3 digital assets in detail, and let everyone quickly grasp the research boundaries of this field. This is important because a prerequisite for any worthwhile innovation is figuring out the boundaries of the current field of research, otherwise it would be like reinventing the steam engine now, which is cool but worthless.

I believe everyone already knows that Token/Coin is generally used to refer to assets in the field of Web3. Since the emergence of Web3 originated from the encrypted electronic currency system of Bitcoin, so web3ization of financial assets related to traditional economics has been an important topic for a long time. There is an important concept in the field of traditional economics, that is, fungibility. The so-called fungibility is the ability of a commodity or asset to be exchanged with other similar commodities or assets. Fungible assets simplify the exchange and transaction process because fungibility means equal value between assets.

This concept is easy to understand for modern people, because in essence, the modern financial system is built on the basis of fungible assets, such as currencies, stocks, bonds, etc., there is no difference in the type of assets obtained by different users in different geographical locations in different ways, and the only difference in the physical sense is the quantity. The $1 you withdraw from your bank account at the bank counter is exactly the same as the $1 your friend gets from customers selling goods in a department store. So we can find that this type of asset relies on a quantity measurement method, or a bookkeeping system, which can be paper money, a check or a contract.

With the development of computer science, people have gradually become accustomed to replacing paper-based written records with database-based electronic records, which has had an important impact on the banking system and Wall Street, and electronic bookkeeping systems have greatly improved related asset transactions. The processing efficiency of the blockchain was originally used as an electronic currency accounting system, trying to optimize the existing model from a non-performance aspect. It can even be said that the issuance of Fungible assets is a native function or product of Web3.

As for why Token is used to refer to assets in the Web3 field, or what is the difference between Token/Coin, it doesn’t matter. I think it’s just a difference in slang. In different contexts, people are used to using different names. It seems that many blockchain native assets, or Layer 1 assets, like to refer to Coins, while Tokens are more often used to refer to digital assets issued by Dapps, and such assets are generally implemented through smart contracts. In contrast, I prefer Token, because it comes from the computer field and represents a kind of certificate, which is more extensive than Coin.

So what are the characteristics of Fungible Token in Web3? To explain this problem, we cite a simple piece of code, which is a common Fungible Token development interface standard called Ethereum Request for Comment 20 (ERC-20). The reason for this name is because This concept comes from the Ethereum community’s Proposition 20, also known as EIP-20:

function name() public view returns (string)

function symbol() public view returns (string)

function decimals() public view returns (uint8)

function totalSupply() public view returns (uint256)

function balanceOf(address _owner) public view returns (uint256 balance)

function transfer(address _to, uint256 _value) public returns (bool success)

function transferFrom(address _from, address _to, uint256 _value) public returns (bool success)

function approve(address _spender, uint256 _value) public returns (bool success)

function allowance(address _owner, address _spender) public view returns (uint256 remaining)

We don’t need to care about the specific code implementation. From the names of these interfaces, we can see that it specifies an asset that can be traded. The most critical requirement is that when transferring money, you only need to provide the address of the other party and the number of transfers. And the balance of each owner needs to be recorded.

We know that things that can generate value are called assets, so whether you are investing or starting a business, you need to be clear about the value behind the assets involved. With the development of applications, Fungible Token has gradually formed four types of values, which were briefly mentioned in previous articles, including practical value, growth value, governance value and community cultural value. Next we describe these four values in detail.

The so-called practical value refers to the value generated by a certain token as a necessity for users to use a product or service. Generally speaking, the practical value of a token is mainly reflected in the following aspects:

• Payment scenarios: Tokens with this kind of value are very common, and can usually be used as a handling fee or some kind of “voucher”, such as the native Token of many Proof of Work (POW) blockchains. It can be said that no one thinks that Bitcoin is a qualified Therefore, in addition to being speculative, this type of Token can only be used as a fee for using the corresponding network. If you want to pay BTC to others, you need to use BTC as the transaction fee, otherwise your transaction will be will not be executed. From this point of view, the native tokens of the POW blockchain all have the same mechanism design, so they all have practical value. In addition, there are many Tokens issued by applications or Dapps, which can be used to pay for the fees generated in the process of using their services or products. For example, BNB can be deducted as transaction fees in Binance (of course, this is only BNB one of the values).

• Credential scenarios: Tokens with this type of value are usually used for screening criteria for a specific group. Holding this type of Token means having the qualification to participate in something, and the amount of holding such assets seems to determine the user’s advantage in participating in the event. Similar designs are not difficult to find. Take the Link Token issued by Chainlink (an on-chain oracle project) as an example. Only by holding Link and completing the pledge can you have the opportunity to become an official node operator and be responsible for routing off-chain information to the chain. (From this perspective, many native Tokens issued by Proof of Stake (POS)-type Layer1 blockchains have this value to a certain extent, but we will analyze such Tokens in detail in the chapter on growth value. ), the second example is DAOMaker, a decentralized IDO platform. The DAO Token issued by it also has similar value. Only by staking a certain amount of DAO, can you be eligible to participate in IDO activities on its platform.

• Financial scenarios: Such projects usually realize financial derivatives Tokens with certain characteristics in some way, or such Tokens are their products, and their value lies in practical value. Representative stable coins such as USDT, DAI, FRAX, and some financial derivatives, such as Synthetix, which is a synthetic asset platform, users can create a Token whose price anchors off-chain assets according to their needs, such as gold and Tesla stocks etc., a series of derivative tokens issued on its platform also have such value.

The so-called growth value refers to the value growth brought by the Token capture protocol or project development. Generally speaking, the growth value of Token is realized through the following three mechanisms:

• Realized through the dividend mechanism: This mechanism is not unfamiliar to everyone. In fact, such Tokens are very similar to stock dividends in the settings of the dividend mechanism. However, the difference is that holding a Token is not equivalent to having the ownership of the agreement or project, which is fundamentally different from stocks. In this context, such Tokens can be regarded as certificates of dividend rights, and the protocol will distribute the profits generated in the development process to the holders of such Tokens in proportion.

  For example, many native Tokens issued by POS-type Layer1 blockchains have this value to a certain extent. In the POS version of Ethereum, if you hold ETH and participate in the pledge of the correct block, you will get ETH rewards, while ETH ’s value is supported by the network usage fee of Ethereum, so it can be regarded as a dividend for the growth of the network. The current difference is that this dividend process is not through the direct distribution of the fee income, but through the destruction of the fee. The deflation of ETH and the inflation brought about by the new issuance of ETH are realized by this monetary policy. Another example is more intuitive, Alpha Finance, a multi-chain liquidity mining and lending protocol, the Token issued by it is called Alpha, which is more intuitive in the performance of dividend rights. Alpha holders can obtain the Protocol Fee generated during the operation of the protocol by means of stake;

• Realized through open market operations: This mechanism generally exists with some CeFi agreements, rather than in the design of tokens issued by Dapps. The company will use part of the revenue to periodically repurchase tokens from the secondary market and destroy them. In this way, the circulation is reduced, thereby indirectly enabling the Token to capture the revenue of the protocol, such as BNB, FTT, etc., is obviously a smart approach, because it will avoid some regulatory troubles;

• Realized through the native mechanism of the protocol: This mechanism is quite special. Some people call it the innovation of DeFi, while others call it a Ponzi scheme. In fact, these products have no actual business, or take a secondary purpose as their surface business, but in essence, the design of their mechanisms usually revolves around how to capture certain tokens issued by them. Exaggerated premium. Taking Olympus DAO as an example, it is difficult to tell what its specific business is, because officially he claims to be an algorithmic stablecoin, but you will find that OHM is much higher than $1, and most importantly, it is not stable , but utilizes a large number of sophisticated native mechanism designs to achieve efficient capture of short-term premiums. Although it is difficult to judge whether it is good or bad, this paradigm has indeed played an important role in the development of Web3. Consider Luna’s performance before the collapse and the state of its ecological development.

In fact, Decentralized Autonomous Organization was once regarded as an important invention of Web3, also known as DAO. How to effectively reach a consensus on something in a distributed loose organization is an important topic of DAO. A common paradigm is to issue a token representing voting rights. When voting on an event or proposal, Voters need to pass tokens, and the number of tokens they hold usually means they have an equal proportion of decision-making weights. For example, Comp issued by Compound and CRV issued by CurveFi respectively represent voting rights for certain systemic parameters in the two products, such as interest rate adjustments. It should be noted that this governance value is usually not fully equivalent to the ownership of the project, because the scope of governance is usually limited, and only has the ability to make decisions on the agreement or project parameters or mechanisms within the specified scope. Decisions such as shutdowns, bankruptcy liquidations, etc. are generally not possible through this paradigm.

This value is similar to brand value. In the previous discussion, we know that the basic value of Web3 is an ideological value, which is a cultural value. Therefore, this cultural value is usually carried by the Token issued by it, which basically runs through all Web3 projects. In fact, BTC has become a symbol of Web3 to a certain extent. Although the native network of BTC does not have the ability to become a Turing-complete computing device, its symbolic value is the largest factor supporting its market value. For Web3 projects, this value is based on the recognition of its products, vision, team, culture, etc. by its community, so we call it community cultural values. From this perspective, it is not difficult to understand why there are so many buyers of Shib, Dogecoin, etc.

In the next development of Web3, I think how to explore the value type of new Fungible Token is a meaningful question. As we said before, this is an important innovation direction and driving force.

In Aristotle’s formal logic, thought is organized in a manner very different from that of the Platonic dialogue. In this formal logic, thought is indifferent toward its objects. Whether they are mental or physical, whether they pertain to society or to nature, they become subject to the same general laws of organization, calculation, and conclusion but they do so as fungible signs or symbols, in abstraction from their particular “substance.” This general quality (quantitative quality) is the precondition of law and order in logic as well as in society the price of universal control.

— — Herbert Marcuse

I choose to start by citing Herbert Marcuse, a German-American philosopher, sociologist, and political theorist. The above sentence basically reveals an important problem in the field of Western philosophy, the universal problem, that is, whether there is a certain truth to explain everything. In my opinion, this problem stems from the emergence of fungible items such as money, which is a way of describing the world. In previous articles, we explored some basic questions about Web3, such as the core value of Web3 and the significance of digital assets for Web3, etc. I hope these discussions can help you build a unified understanding of Web3 and realize the importance of digital asset innovation for Web3. In the next few articles, we will discuss the development status of Web3 digital assets in detail, and let everyone quickly grasp the research boundaries of this field. This is important because a prerequisite for any worthwhile innovation is figuring out the boundaries of the current field of research, otherwise it would be like reinventing the steam engine now, which is cool but worthless.

I believe everyone already knows that Token/Coin is generally used to refer to assets in the field of Web3. Since the emergence of Web3 originated from the encrypted electronic currency system of Bitcoin, so web3ization of financial assets related to traditional economics has been an important topic for a long time. There is an important concept in the field of traditional economics, that is, fungibility. The so-called fungibility is the ability of a commodity or asset to be exchanged with other similar commodities or assets. Fungible assets simplify the exchange and transaction process because fungibility means equal value between assets.

This concept is easy to understand for modern people, because in essence, the modern financial system is built on the basis of fungible assets, such as currencies, stocks, bonds, etc., there is no difference in the type of assets obtained by different users in different geographical locations in different ways, and the only difference in the physical sense is the quantity. The $1 you withdraw from your bank account at the bank counter is exactly the same as the $1 your friend gets from customers selling goods in a department store. So we can find that this type of asset relies on a quantity measurement method, or a bookkeeping system, which can be paper money, a check or a contract.

With the development of computer science, people have gradually become accustomed to replacing paper-based written records with database-based electronic records, which has had an important impact on the banking system and Wall Street, and electronic bookkeeping systems have greatly improved related asset transactions. The processing efficiency of the blockchain was originally used as an electronic currency accounting system, trying to optimize the existing model from a non-performance aspect. It can even be said that the issuance of Fungible assets is a native function or product of Web3.

As for why Token is used to refer to assets in the Web3 field, or what is the difference between Token/Coin, it doesn’t matter. I think it’s just a difference in slang. In different contexts, people are used to using different names. It seems that many blockchain native assets, or Layer 1 assets, like to refer to Coins, while Tokens are more often used to refer to digital assets issued by Dapps, and such assets are generally implemented through smart contracts. In contrast, I prefer Token, because it comes from the computer field and represents a kind of certificate, which is more extensive than Coin.

So what are the characteristics of Fungible Token in Web3? To explain this problem, we cite a simple piece of code, which is a common Fungible Token development interface standard called Ethereum Request for Comment 20 (ERC-20). The reason for this name is because This concept comes from the Ethereum community’s Proposition 20, also known as EIP-20:

function name() public view returns (string)

function symbol() public view returns (string)

function decimals() public view returns (uint8)

function totalSupply() public view returns (uint256)

function balanceOf(address _owner) public view returns (uint256 balance)

function transfer(address _to, uint256 _value) public returns (bool success)

function transferFrom(address _from, address _to, uint256 _value) public returns (bool success)

function approve(address _spender, uint256 _value) public returns (bool success)

function allowance(address _owner, address _spender) public view returns (uint256 remaining)

We don’t need to care about the specific code implementation. From the names of these interfaces, we can see that it specifies an asset that can be traded. The most critical requirement is that when transferring money, you only need to provide the address of the other party and the number of transfers. And the balance of each owner needs to be recorded.

We know that things that can generate value are called assets, so whether you are investing or starting a business, you need to be clear about the value behind the assets involved. With the development of applications, Fungible Token has gradually formed four types of values, which were briefly mentioned in previous articles, including practical value, growth value, governance value and community cultural value. Next we describe these four values in detail.

The so-called practical value refers to the value generated by a certain token as a necessity for users to use a product or service. Generally speaking, the practical value of a token is mainly reflected in the following aspects:

• Payment scenarios: Tokens with this kind of value are very common, and can usually be used as a handling fee or some kind of “voucher”, such as the native Token of many Proof of Work (POW) blockchains. It can be said that no one thinks that Bitcoin is a qualified Therefore, in addition to being speculative, this type of Token can only be used as a fee for using the corresponding network. If you want to pay BTC to others, you need to use BTC as the transaction fee, otherwise your transaction will be will not be executed. From this point of view, the native tokens of the POW blockchain all have the same mechanism design, so they all have practical value. In addition, there are many Tokens issued by applications or Dapps, which can be used to pay for the fees generated in the process of using their services or products. For example, BNB can be deducted as transaction fees in Binance (of course, this is only BNB one of the values).

• Credential scenarios: Tokens with this type of value are usually used for screening criteria for a specific group. Holding this type of Token means having the qualification to participate in something, and the amount of holding such assets seems to determine the user’s advantage in participating in the event. Similar designs are not difficult to find. Take the Link Token issued by Chainlink (an on-chain oracle project) as an example. Only by holding Link and completing the pledge can you have the opportunity to become an official node operator and be responsible for routing off-chain information to the chain. (From this perspective, many native Tokens issued by Proof of Stake (POS)-type Layer1 blockchains have this value to a certain extent, but we will analyze such Tokens in detail in the chapter on growth value. ), the second example is DAOMaker, a decentralized IDO platform. The DAO Token issued by it also has similar value. Only by staking a certain amount of DAO, can you be eligible to participate in IDO activities on its platform.

• Financial scenarios: Such projects usually realize financial derivatives Tokens with certain characteristics in some way, or such Tokens are their products, and their value lies in practical value. Representative stable coins such as USDT, DAI, FRAX, and some financial derivatives, such as Synthetix, which is a synthetic asset platform, users can create a Token whose price anchors off-chain assets according to their needs, such as gold and Tesla stocks etc., a series of derivative tokens issued on its platform also have such value.

The so-called growth value refers to the value growth brought by the Token capture protocol or project development. Generally speaking, the growth value of Token is realized through the following three mechanisms:

• Realized through the dividend mechanism: This mechanism is not unfamiliar to everyone. In fact, such Tokens are very similar to stock dividends in the settings of the dividend mechanism. However, the difference is that holding a Token is not equivalent to having the ownership of the agreement or project, which is fundamentally different from stocks. In this context, such Tokens can be regarded as certificates of dividend rights, and the protocol will distribute the profits generated in the development process to the holders of such Tokens in proportion.

  For example, many native Tokens issued by POS-type Layer1 blockchains have this value to a certain extent. In the POS version of Ethereum, if you hold ETH and participate in the pledge of the correct block, you will get ETH rewards, while ETH ’s value is supported by the network usage fee of Ethereum, so it can be regarded as a dividend for the growth of the network. The current difference is that this dividend process is not through the direct distribution of the fee income, but through the destruction of the fee. The deflation of ETH and the inflation brought about by the new issuance of ETH are realized by this monetary policy. Another example is more intuitive, Alpha Finance, a multi-chain liquidity mining and lending protocol, the Token issued by it is called Alpha, which is more intuitive in the performance of dividend rights. Alpha holders can obtain the Protocol Fee generated during the operation of the protocol by means of stake;

• Realized through open market operations: This mechanism generally exists with some CeFi agreements, rather than in the design of tokens issued by Dapps. The company will use part of the revenue to periodically repurchase tokens from the secondary market and destroy them. In this way, the circulation is reduced, thereby indirectly enabling the Token to capture the revenue of the protocol, such as BNB, FTT, etc., is obviously a smart approach, because it will avoid some regulatory troubles;

• Realized through the native mechanism of the protocol: This mechanism is quite special. Some people call it the innovation of DeFi, while others call it a Ponzi scheme. In fact, these products have no actual business, or take a secondary purpose as their surface business, but in essence, the design of their mechanisms usually revolves around how to capture certain tokens issued by them. Exaggerated premium. Taking Olympus DAO as an example, it is difficult to tell what its specific business is, because officially he claims to be an algorithmic stablecoin, but you will find that OHM is much higher than $1, and most importantly, it is not stable , but utilizes a large number of sophisticated native mechanism designs to achieve efficient capture of short-term premiums. Although it is difficult to judge whether it is good or bad, this paradigm has indeed played an important role in the development of Web3. Consider Luna’s performance before the collapse and the state of its ecological development.

In fact, Decentralized Autonomous Organization was once regarded as an important invention of Web3, also known as DAO. How to effectively reach a consensus on something in a distributed loose organization is an important topic of DAO. A common paradigm is to issue a token representing voting rights. When voting on an event or proposal, Voters need to pass tokens, and the number of tokens they hold usually means they have an equal proportion of decision-making weights. For example, Comp issued by Compound and CRV issued by CurveFi respectively represent voting rights for certain systemic parameters in the two products, such as interest rate adjustments. It should be noted that this governance value is usually not fully equivalent to the ownership of the project, because the scope of governance is usually limited, and only has the ability to make decisions on the agreement or project parameters or mechanisms within the specified scope. Decisions such as shutdowns, bankruptcy liquidations, etc. are generally not possible through this paradigm.

This value is similar to brand value. In the previous discussion, we know that the basic value of Web3 is an ideological value, which is a cultural value. Therefore, this cultural value is usually carried by the Token issued by it, which basically runs through all Web3 projects. In fact, BTC has become a symbol of Web3 to a certain extent. Although the native network of BTC does not have the ability to become a Turing-complete computing device, its symbolic value is the largest factor supporting its market value. For Web3 projects, this value is based on the recognition of its products, vision, team, culture, etc. by its community, so we call it community cultural values. From this perspective, it is not difficult to understand why there are so many buyers of Shib, Dogecoin, etc.

In the next development of Web3, I think how to explore the value type of new Fungible Token is a meaningful question. As we said before, this is an important innovation direction and driving force.