No doubt, the crypto industry has, since its 2013 boom, continued to witness numerous categories of tokens. One of them is Utility tokens which have become very popular, particularly among traders. According to our findings, utility tokens are coins designed to fuel and power a given DeFi project. Certainly, utility tokens avail holders of numerous features on the DeFi ecosystem. It is worthy of note that these tokens are not primarily developed to run as a real-world medium of exchange. What they do is restricted to serving the use case which they have been designed to serve on a given smart contract network.
The method of minting utility tokens is usually different from other cryptocurrencies. They are not mined like Bitcoin. Rather, they “pre-mine” the tokens and relay them to members of the community and early investors. This thus means developers of a given DeFi project usually release the tokens on a smart contract, thereby granting users access to numerous offerings. For instance, SAND, the native token of Sandbox provides access to several in-game items on the project.
Functions of Utility Tokens
Utility tokens serve numerous purposes. Some of the purposes include:
Gaming
Certainly, utility tokens serve gaming purposes. Today, many blockchain-oriented gaming projects have their respective native tokens. Through these tokens, they enable gamers to purchase numerous in-game items and features. Worthy of note that they also leverage their token to reward gamers for their gaming performance.
Voting
Utility tokens also provide enablement for holders to vote in a given DeFi ecosystem. By holding the native token of a particular project, users are eligible to participate in the governance program of the project. This thus enables them to vote on proposals geared towards improving or advancing the ecosystem.
Network Fees
Also, utility tokens also serve as a medium of paying network fees incurred on a given project. Recall that users pay for using a decentralized app with the native token of that particular app. Meanwhile, network fees differs and depend on each platform.
SOL
SOL is an example of a utility token. The token is used for various purposes on the Solana network. Solana utilizes SOL as its utility coin. Consequently, the token is used to pay network fees on the Solana network. Also, through the token, one can become a validator. In the crypto space, Solana is prominent for the swift processing of transactions. This is possible through the protocol’s Hybrid Consensus mechanism.
MATIC
MATIC is a utility token to the popular Layer-2 network, Polygon. The blockchain employs the Proof-of-Stake consensus mechanism, thus, placing MATIC as a crucial component of the network. Holders of MATIC can stake the coin to become a validator on Polygon. Furthermore, through the staking mechanism, holders of the token can earn passively. Mainly, the token is used as a medium of expansion on the network. Additionally, like other utility tokens, MATIC is used on Polygon to settle network fees. Though the network charges less for network fees compared to some top blockchains.
RNDR
RNDR is another prominent utility token. The token is used to coordinate economic activities on the Render network. RNDR serves as a medium of payment settlement between content creators and users for services rendered on the network. On the network, the value of service provided by network creators is determined in RNDR. However, RNDR is used for three major purposes on the network. These purposes are rights protection, monetization, and empowering individuals.
TRX
The Tron network utilizes TRX as its native token. Like its peers, users are mandated to pay with TRX for on-chain charges within the Tron network. TRX holders can freeze the token to gain Tron Power. Through their Tron Powers they can vote for “super representatives” who work on the network as block producers. The block producers get TRX in return for confirming transactions. Lastly, those who voted for the block producer also get TRX in return for their votes.
Conclusion
Utility tokens are developed for usage within their respective ecosystem. Meanwhile, they share some similarities with Governance tokens. Respectively, most Governance tokens can serve as utility tokens. However, not all Utility tokens can be used for protocol Governance.