Use It Or Lose It: Top Eight Crypto Utility Tokens

New crypto investors tend to flock to Bitcoin (BTC) because of its strong brand recognition. And for good reason: It’s the most widely adopted digital store of value in the world. But that’s where Bitcoin’s use case ends.

Ethereum and other smart contract platforms offer utility in every other industry—from finance to insurance, transportation to art, real estate, and even AI. Need we even mention the metaverse?

How do you make smart investments in the face of volatile market dynamics and thousands of cryptos to choose from? The key is prioritizing utility above all else. Here's what you need to know about the best crypto utility tokens.

While most use 'cryptocurrency' as a catch-all term for blockchain-based digital assets, not all cryptos are technically currencies. In reality, most cryptos fall into one of two main categories: coins and tokens.

Coins are the native currency of a blockchain platform, and they're used to settle transactions. In other words, they’re the default payment method of a network For example, ETH on Ethereum and BNB on the Binance Smart Chain are considered coins.

Tokens are digital assets built on an existing blockchain. Most crypto tokens today are built on Ethereum’s token standards like ERC-20 and ERC-721. These include:

• Utility tokens
• Security tokens
• NFTs
• Meme coins

Let’s zero in on utility tokens.

Simply put, utility tokens enable use cases that aren’t possible with the blockchain’s own native coin. For one, utility tokens give users certain rights over a project or decentralized autonomous organization or community.

In contrast to utility tokens, security or equity tokens represent shares in a company, and meme coins like Doge are just made for the lulz. When you buy an NFT, you're mostly investing in representations of one-of-a-kind digital artworks, but they can also offer utility through features like royalty payments.

This means token holders of utility and security tokens and some NFTs can do more than just speculate over price. But the same can't be said for most meme coins (sorry, Doge).

The crypto space was so simple back when developers' only goal was to make a faster Bitcoin. These days, there are many forms of utility and they'll only grow larger over time. But to keep things simple, let’s look at two of the most common examples of how utility tokens work.

Profit sharing

Most automated decentralized exchanges (DEX) must incentivize users to deposit assets into liquidity pools. To do this, DEXs generate liquidity provider tokens (LP) representing each depositor’s share of a given pool.

You can think of LP tokens as vouchers.

So if you deposited $10,000 into a PancakeSwap pool with a total value locked (TVL) of $1 million, your LP tokens would represent 1% of that pool. Since liquidity pools earn trading fees from each swap, liquidity providers can redeem LP tokens for their share of the pool plus profits. While this mechanism can be profitable, many DeFi investors will deposit their LP tokens into another protocol to maximize yield, AKA yield farming.

Voting

Aside from offering rewards, some utility tokens also have governance features. This gives the token holder a right to vote on decisions that shape the future of a protocol. Holders of some of the best DeFi coins, such as AAVE, can vote to provide grants to projects building on the Aave protocol. To cast a vote, you must connect a crypto wallet with AAVE tokens and select “Yay” or “Nay” on a given proposal.

The hype and narratives in crypto today are primarily based around utility tokens in DeFi, web3, and the metaverse. But it’s not all pixelated sunshine and rainbows. Utility tokens have the highest potential for parabolic gains, but also losses. Here are some risks you should be wary of.

Bottlenecks

No matter how well-designed a utility token is, it will still suffer the same limitations as the blockchain it runs on. For example, it gets expensive to transact any ERC-20 token when Ethereum gas fees spike.

Competition

Since it’s way easier to use an existing blockchain than create one from scratch, utility tokens are the most common type of crypto out there. According to Etherscan, there are nearly half a million ERC-20 tokens. This means that utility tokens face exponentially more competition than layer-1 blockchains do and are more likely to fail. 

Volatility

Another common scenario is when the price of a utility token drops, and you find yourself having to buy more of those tokens to lower your cost basis. This is one of the driving forces behind stablecoins, which are also a kind of utility token. The safest stablecoins offer little to no volatility against assets like the US dollar or gold.

Liquidity

Utility tokens are never as liquid as their blockchain’s native coin. So if you fall victim to a pump and dump scheme, there might not be a sucker on the other side of the exchange waiting to buy your tokens.

Warren Buffet says if you can’t hold a stock for 10 years, then you shouldn’t hold it for 10 minutes. Whether you’re looking to HODL for one year or ten, cryptocurrencies with direct utility are your best bet. Here are a few of the most popular utility tokens. 

Polygon (MATIC)

Polygon is the most promising scaling solution to Ethereum’s problems, namely high fees and slow transactions. MATIC is the utility token used to govern, stake, and pay for gas fees on the Polygon network—a 'sidechain' of the Ethereum blockchain.

Chainlink (LINK)

Chainlink is an oracle—service that provides real-time price data to blockchains and decentralized applications (DApps). While Chainlink is able to integrate with many different blockchains, LINK is an ERC-20 utility token that’s mainly used to reward users for providing accurate data.

Binance Coin (BNB)

Here’s where the line starts getting blurry. BNB is a crypto coin and utility token at the same damn time. It's the native currency of the Binance Chain, but also offers utility to users of the Binance exchange by giving them a 25% discount on trading fees when they pay with BNB.

Binance is not available in the U.S., and there's contention as to whether or not BNB is a security token in addition to being a utility token and crypto coin. BNB is a great example how utility tokens and security tokens are not mutually exclusive and how blockchain assets don't always fit in the categories outlined in this article.

Uniswap (UNI)

Uniswap is a decentralized exchange on Ethereum that has grown to become the most valuable DEX in the world. It launched without a token, but the UNI utility token was created later on to let users vote on ways to shape the protocol.

Decentraland (MANA)

Decentraland is a popular metaverse built on Ethereum and Polygon along with The Sandbox (SAND). Decentraland has two utility tokens: MANA and LAND. MANA tokens can be used to pay for avatars, items, names, and land.

When users buy digital real estate in the Decentraland metaverse, their MANA is burned in exchange for LAND—NFTs that are essentially virtual land deeds.

Enjin (ENJ)

Enjin is a company that creates blockchain gaming tools for developers that are used to create their own virtual goods. The Enjin Coin (ENJ) is an ERC-20 utility token that’s used to back the value of these in-game NFTs.

Arweave (AR)

Arweave is a decentralized storage network that aims to store data forever, including a permanent version of the web called the Permaweb. The utility token AR is used to pay miners to store all the network’s data.

Basic Attention Token (BAT)

The Basic Attention Token (BAT) is a utility token that aims to disrupt digital advertising by rewarding consumers for watching ads. This enables you to either earn BAT from the ads you see or use it to reward online creators. It's one of the few utility tokens that doesn't offer any direct benefits to token holders.

For example, the Brave browser is a private and secure web browser that allows users to opt-in to advertisements. Users get rewards in Basic Attention Token for viewing ads and can support their favorite creators directly by tipping them in BAT. The benefit of this is decentralization since it eliminates the intermediaries needed to bring ads from advertisers to consumers.

Chances are, you already know how crypto exchanges work—but before you start buying utility tokens, there's one more utility token you need to know about.

Cronos (CRO) is another utility token that straddles the line between coin and token. It has it's own blockchain—the Crypto.org chain—but it's also the utility token of the Crypto.com crypto exchange.

One thing that sets CRO apart is that it's a proof of stake coin, which means you can earn passive income by depositing it on Crypto.com. You can also use CRO to save money on purchases if you use Crypto.com's suite of crypto debit cards.

If you don't care about utility tokens and just want an app to trade crypto, sign up for Crypto.com to start trading coins, tokens, NFTs, and everything blockchain.