Use It Or Lose It: The 8 Best Crypto Utility Tokens

Use It Or Lose It: The 8 Best Crypto Utility Tokens

Forget about meme coins. Cryptocurrencies with utility can give you long-term gains for way less stress.

Use It Or Lose It: The 8 Best Crypto Utility Tokens
Darry Port

Published Feb 4, 2022Updated Aug 9, 2022

Crypto

Crypto

Technology

Technology

Active Investing

Active Investing

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 art, insurance and transport to AI, gaming and real estate, the list goes on. 

It’s also worth mentioning that while Bitcoin has no real competition in its category, every other cryptocurrency is still fighting for its share of the market. A top 20 coin today can be a top 100 coin tomorrow and vice versa. 

Faced with these volatile market dynamics, with more than 17,000 cryptos to choose from, how do you make smart decisions when investing in crypto? I’ll give you a hint: prioritize utility above all else. Here's what you need to know about the best crypto utility tokens.

What are crypto utility tokens?

While most of us use the word “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 a method of payment. For example: ETH on Ethereum and BNB on the Binance Smart Chain are considered coins. 

Tokens are digital assets built on top of an existing blockchain. Most crypto tokens today are built on Ethereum’s ERC-20 standard and come in different flavors, including:

  • Utility tokens
  • Security tokens
  • Meme coins
  • NFTs

Let’s zero-in on utility tokens. 

Simply put, these cryptos enable use cases that aren’t possible with the blockchain’s own native coin. For one, utility tokens give users certain rights (e.g. discounts, voting) within a project or community. 

In contrast to utility tokens, security tokens represent shares in a company (e.g. Exodus’ EXIT token) and meme coins (e.g. Dogecoin) are just made for the lulz. When you invest in NFTs, you're mostly investing in representations of one-of-a-kind digital artworks, but they can also offer utility through features like royalty payments.

How do crypto utility tokens work?

The crypto space used to be so simple back when developers were only trying to create a faster Bitcoin. These days, there are as many forms of utility as there are dollars on the Fed’s balance sheet. And like the latter, it’s only going to 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 (DEXes) have to incentivize users to deposit their assets into liquidity pools. To do this, DEXes generate Liquidity Provider (LP) tokens that represent each depositor’s share of a given pool. You can think of these LP tokens as vouchers.

So if you deposited $1,000 into a PancakeSwap pool with $1 million of Total Value Locked (TVL), your LP tokens would represent 0.1% of that pool. And since pools earn trading fees off of each swap, liquidity providers can redeem LP tokens for their share of the pool plus profits. Neat, right?

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, like AAVE for instance, can vote to provide grants to projects building on the Aave protocol. To cast a vote, all you have to do is connect a crypto wallet with AAVE tokens and select “Yay” or “Nay” on a given proposal.

One common governance proposal across crypto projects is whether or not the protocol should introduce token burning. This is when tokens are deliberately removed from the circulating supply to drive up prices and attract new users.

Should I invest in crypto utility tokens?

The hype and narratives in crypto today are primarily based around utility tokens in DeFi, Web3 and 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 from the same limitations as the blockchain it's running on. Take any ERC-20 token as an example of this. When ETH gas fees spike, every ERC-20 transaction gets expensive.

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-2 tokens alone. 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 perform a given transaction. This is one of the driving forces behind stablecoins, which are also a kind of utility token.

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. 

Battle of the tokens

Battle of the tokens

LINK vs MATIC: what's your pick?

Best crypto utility 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 10, cryptocurrencies with direct utility are your best bet. Here are a few of the most popular utility tokens. 

Binance Coin (BNB)

Here’s where the line starts getting blurry. BNB is a crypto coin and token at the same damn time. I previously mentioned that BNB is the native currency of the Binance Smart Chain. But on the utility side, Binance users can get a 25% discount on trading fees when they pay with BNB.

Polygon (MATIC)

Polygon is the most promising scaling solution to Ethereum’s problems, namely high fees and low transaction speeds. MATIC is the utility token used to govern, stake and pay for gas fees on the Polygon network. 

Chainlink (LINK)

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

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 utility token, but created UNI later on to give users the ability to shape the future of the protocol. 

Decentraland (MANA)

Decentraland is the most popular Metaverse built on Ethereum, followed closely by 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 plots of land, their MANA is burned in exchange for LAND NFT tokens.

Enjin (ENJ)

Enjin is a company that creates blockchain gaming tools for developers, which they can use to create their own virtual goods. The Enjin Coin (ENJ) is an ERC-20 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 Brave browser is a private and secure web browser that allows users to opt-in to advertisements. Users are rewarded with the Basic Attention Token (BAT) tokens for viewing ads in addition to being able to tip BAT to their favorite content creators.