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\nNative tokens are a blockchain’s inherent digital currency. Every independent blockchain has its own native crypto that is used to reward miners and validators adding blocks to the blockchain and as a payment method, including for transaction fees.\u00a0These types of tokens<\/a> are also known as base tokens or intrinsic tokens because a blockchain<\/a>‘s design lets a particular token function with it.\n<\/p>\n \nThere are also non-native tokens that are derivatives of a blockchain built to rely on the native token. Non-native tokens are made for specific purposes and come in the form of governance tokens<\/a>, wrapped tokens, and stablecoins<\/a>, among others.\n<\/p>\n <\/p>\n \nThere are several native tokens with their respective blockchains. Some examples are the Ethereum<\/a> blockchain’s native token called Ether (ETH)<\/a>; the Binance Smart Chain, which has a native token called Binance Coin (BNB); and Cardano<\/a>\u2019s native token, ADA.\u00a0\n<\/p>\n \nIn other cases, the native token carries the same name as the blockchain: Two notable ones are the Bitcoin blockchain with its native token, bitcoin, and the Stellar<\/a> blockchain with stellar as its native token.\u00a0\n<\/p>\n \nA ticker symbol is used when identifying a token with a name similar to its blockchain. This is a mix of different letters that represent an asset. For bitcoin, the ticker symbol is BTC, while XLM represents stellar. In other cases, the first letter of the blockchain name is capitalized and that of the native token is lowercased to distinguish the two.\u00a0\n<\/p>\n \nA native token is meant to represent the value of the crypto network’s ecosystem. For instance, Ether represents the value of the entire Ethereum blockchain.\n<\/p>\n <\/p>\n \nTo understand the importance of a native token, let’s review how the Ethereum blockchain functions and the role of Ether, its native currency.\n<\/p>\n \nThe Ethereum blockchain has helped shape several industries because it was designed to have smart contracts<\/a>, used to develop decentralized applications (dApps)<\/a>. Ethereum is a critical component in decentralized finance (DeFi)<\/a>. The variety of its use cases has added to the value of Ether.\n<\/p>\n \nEther has two primary uses on the Ethereum blockchain: payment, for transactions made via Ethereum and for transaction fees, also known as gas fees<\/a>, as well as for collateral, which network validators stake<\/a> to establish their eligibility. Some Ethereum-based decentralized applications also use Ether as an authorized currency to facilitate transactions.\n<\/p>\n \nGas fees on the Ethereum blockchain refer to the fees paid for transactions to be completed. The fees are denominated in “Gwei<\/a>” (1 ETH is equal to 1 billion Gwei). Validators are decentralized computers or nodes that approve and confirm transactions. To participate, nodes stake Ether, making them eligible.\n<\/p>\n \nJust as Ethereum\u2019s Ether becomes valuable in this way, other blockchains, such as Solana and Algorand<\/a>, have native tokens that enable smart contracts.\n<\/p>\n <\/p>\n \nNon-native tokens are tokens whose blockchains are derivatives of another blockchain with a native token.\n<\/p>\n \nThese tokens rely on the native token’s blockchain standards to thrive. The most prominent example of this is the Ethereum blockchain, which houses several decentralized applications with their own tokens. In addition to being a derivative, non-natives tokens are developed for specific uses, either as the only source of payment within their ecosystem, particularly with dApps, or for governing a right on decentralized autonomous organization (DAO)<\/a> projects.\n<\/p>\n <\/p>\n \nNon-native tokens come in different categories, such as governance tokens, wrapped tokens, stablecoins, and oracle tokens. Some examples of non-native tokens include the Chainlink platform’s LINK; WBTC, a tokenized wrapped bitcoin that runs on the Ethereum blockchain; USD Coin (USDC)<\/a>, a digital currency that is fully backed by U.S. dollar assets; AAVE, the native token of the decentralized Aave<\/a> platform; and DAO Maker’s governance token, MKR.\n<\/p>\n \nLINK, the token of a decentralized\u00a0blockchain oracle\u00a0network built on\u00a0Ethereum called Chainlink<\/a>, is a classic example of a non-native token, and is a primary source of payment. Chainlink is middleware connecting blockchain smart contracts with real-world data, and LINK is used to pay its operators responsible for retrieving off-chain data and performing computations. LINK allows external data to communicate with the blockchain.\n<\/p>\n \nFor example, when a person uses crypto to bet on the outcome of a football match, the wager is stored on a smart contract. To determine whether the person won or lost, the blockchain needs a reliable source of information; oracle tokens such as Chainlink’s are practical for this use. Besides LINK, other non-native tokens in this category are Band Protocol (BAND) and NEST protocol (NEST).\u00a0\n<\/p>\n \nUses of non-native tokens and benefits they provide are seen in DeFi and DAO projects, where they provide reduced transaction fees and act as governance tokens.\n<\/p>\n \nWith a decentralized money market such as Aave, where cryptocurrency can be lent and borrowed, users get a reduced transaction fee when carrying out an activity on the DeFi platform, making it reliable to them. This added benefit lets the holder of AAVE govern through voting how the protocol works, changes that should be implemented, and more.\n<\/p>\n\nKey Takeaways<\/h3>\n
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Examples of Native Tokens <\/span> <\/h2>\n
Importance of Native Tokens <\/span> <\/h2>\n
Understanding Non-Native Tokens\u00a0 <\/span> <\/h2>\n
Examples of Non-Native Tokens\u00a0 <\/span> <\/h2>\n