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# a16zcrypto’s Handbook for Crypto Tokens
Investment company a16zcrypto has created a structure to aid you in understanding the constantly evolving space of crypto, from network tokens to meme coins.
Wikipedia characterizes digital money as a virtual currency intended to function through a digital system that “is not dependent on any governing body, such as a state or financial institution, to support or manage it.”
In 2009, Bitcoin (BTC) was the sole digital money. Currently, there are more than 12 million unique tokens! Utility tokens, meme coins, security tokens…it’s not surprising that crypto can appear very complex.
> “So whether you’re creating a project based on blockchain, putting money into tokens, or just utilizing them as a user, it’s essential to understand what to consider. For example, it’s key not to mix up a meme token with a network token.”
>
> a16zcrypto
To aid in comprehending crypto, Miles Jennings, Scott Duke Kominers, and Eddy Lazzarin at a16zcrypto have developed a structure for analyzing the seven token categories they observe founders constructing frequently. Let’s examine more closely these groups.
## Network Tokens
Network tokens maintain the operation of blockchains and smart contract protocols. Their worth originates from the way the network operates. They typically possess a defined function, like assisting with network activities, improving protocols, establishing agreement, or incentivizing particular actions inside the network.
As per a16z crypto, web tokens frequently possess attributes like “configured repurchases, returns, and other functionalities that alter the overall quantity of tokens via creation or devastation, presenting rising cost of living and deflationary forces to serve the web.”
The worth of web tokens is embedded in a depend on system. a16z crypto thinks that these sorts of tokens resemble products and protections.
>”Offered this element, the structure recommended by the U.S. Stocks and Exchange Commission in 2019 and the FIT21 Act both plainly state that web tokens can be excluded from U.S. safety and securities regulations when the decentralization of the underlying web can properly reduce dependence on depend on.”
>– a16z crypto
These tokens are largely utilized to introduce brand-new networks, designate possession or control, and guarantee web safety and security. One of the most depictive instances consist of Bitcoin, Ethereum, Solana, Uniswap, and Dogecoin.
## Safety And Security Tokens
While web tokens might look like protections in some methods, safety and security tokens are really electronic depictions of conventional protections, such as business supplies or business bonds. They might likewise have unique attributes, such as giving holders the right to revenues from a restricted obligation business or future lawsuits negotiation repayments.
As a16z crypto stresses, although protections provide holders particular legal rights, possession, or passions, and providers are typically in charge of handling the threats of properties, safety and security tokens are still subject to U.S. safety and securities regulations. Although safety and security tokens are not as commonly utilized as web tokens or meme coins, they are still utilized to elevate funds for business endeavor resources tasks.
For instance, Etherfuse Stablebonds and Aspen Coin permit financiers to acquire partial possession of the Aspen St. Regis Hotel.
## Company-Backed Tokens
Company-backed tokens are very closely connected to off-chain applications, items, or solutions run by business or centralized companies.
Nevertheless, such digital assets are mainly employed for external procedures instead of possessing the network. As a result, establishments wield increased authority over the production, practicality, and assessment of these digital coins. Kiyosaki: Global Economy Declining, Predicts Bitcoin at $200,000
Even though these digital coins do not present obvious entitlements or ownership akin to conventional bonds, they still possess a comparable reliance on confidence.
> “Their worth fundamentally hinges on a framework overseen by persons, a firm, or an executive group.”
> a16z Crypto MovieAI and EMC Unite to Supercharge Artificial Intelligence Advancement
Specialists caution that, due to this cause, corporate-supported digital coins might be exposed to US bond regulations when garnering funding. In the past, corporate-backed digital coins have been utilized to bypass US bond regulations, functioning as substitutes for corporate shares or earnings stakes.
For instance, FTT, which symbolized an earnings stake in the notorious FTX exchange. Binance Coin (BNB) stands as another illustration of a corporate-backed digital coin, evolving into a network digital coin following the introduction of the BNB Chain.
## Amusement Tokens
a16z Crypto clarifies that amusement tokens are predominantly utilized within a framework and are not conceived for investment. These digital coins frequently serve as currency in simulated economies, such as virtual gold in games, devotion rewards in membership schemes, or credits for digital merchandise.
Amusement tokens are distinctive in that they are fashioned to deter conjecture. They may possess an unbounded quantity – signifying an infinite number can be produced – and/or restricted transferability.
As a16z Crypto emphasizes, these digital coins may even “lapse or forfeit worth if unutilized, or they may solely retain monetary worth and practicality within the framework that generated them.” Commonly, amusement tokens do not assure monetary yields, which renders them comparatively secure from US bond regulations.
For example, FLY constitutes a devotion token for the Blackbird dining establishment network, whereas Pocketful of Quarters is an in-game asset that has acquired alleviation in the US.
In 2019, the U.S. Securities and Exchange Commission (SEC) promulgated pertinent rules.
## Tokenized Collectibles
Tokenized collectibles represent one of the most typical token categories. They might symbolize artwork, songs, or even concert ticket remnants. Nevertheless, they are frequently recognized by the public under a different designation: NFTs, or non-fungible tokens. While NFTs may seem like just another speculative craze, these tokens can certainly possess usefulness in certain situations.
> “Tokenized collectibles can function as permits or passes to occasions; can be implemented in video games (such as that sword); or can grant ownership pertaining to intellectual property.”
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> a16z Crypto
a16z Crypto emphasizes that given tokenized collectibles are generally linked to completed items and do not depend on external endeavors, they are typically not governed by U.S. securities regulations. Notable NFTs may include Bored Ape Yacht Club and CryptoPunks.
## Asset-Secured Tokens
The worth of asset-secured tokens stems from entitlements to fundamental assets. For instance, commodities, government-issued money, or even virtual assets such as cryptocurrencies.
These tokens can be entirely or partly guaranteed, and they offer diverse applications, including serving as a store of wealth or a hedging mechanism. However, in contrast to tokenized collectibles, which obtain worth from the possession of distinct items, asset-secured tokens operate more like monetary tools. According to a16z Crypto, “the regulatory handling of asset-secured tokens hinges on their composition and utilization.”
Instances encompass government-issued money-secured stablecoins like Circle’s USD Coin (USDC), liquidity provider tokens like Compound’s C-tokens, or derivatives tokens such as OPYN’s Squeeth.
## Meme-Based Cryptocurrencies
Then there are meme-based cryptocurrencies – possibly the most recognized tokens. These resemble the summit of internet disarray. They essentially lack any practical purpose and are mainly connected with memes or any community excitement.
Whats the situation encompassing those entities? Disregard it entirely. It revolves around conjecture and the sentiments of the marketplace, implying their susceptibility to meddling or manipulative “pump and dump” schemes.
Given their volatile nature, as emphasized by a16z crypto, meme tokens are “typically excluded from US securities regulations,” albeit they remain subject to regulations prohibiting deceit and market manipulation. What distinguishes them? They lack intrinsic functionality or practical utility, and their valuations exhibit extreme fluctuations, rendering them unsuitable for investment purposes. Notable instances encompass Pepe (PEPE), Shiba Inu (SHIB), and the nascent Trump (TRUMP) meme token associated with Donald Trump.
