Coin versus Token: The Properties of the SOV Token

Brought to you by Sovryn

December 30, 2021

The crypto universe is expanding rapidly and new projects are launched every day. Public blockchains, sidechains, DeFi protocols and DAOs offer Web 3.0 services to users around the world. Many projects have their own coin or token which allows users to interact with, participate in and profit from these protocols. Coinmarketcap currently lists over 8,000 crypto assets, which is ten times more than 5 years ago.

Staying on top of things could be a full time job! The crypto space is evolving at breakneck speed and the sheer amount of different crypto assets can be quite overwhelming. Figuring out what individual projects are trying to do often requires in-depth knowledge. Even seasoned experts can have a hard time evaluating the fair value of a coin or token.

The Difference between Coins and Tokens

To bring clarity to this opaque sea of crypto assets, let’s discuss some of the differences between coins and tokens. The two terms are not always used consistently in the crypto space. So, we want to give you a better understanding of what they mean.

  • Coin: A coin is the native asset of a public blockchain that is primarily used as a currency. Crypto coins are designed to function like regular 'fiat' money: they can be sent, received, and can have a limited supply. Some well known examples are Bitcoin (BTC), Ether (ETH) and Solana (SOL), which are the native coins of their respective blockchains.

  • Token: A token is a crypto asset that is built to be used on an existing blockchain. Tokens can be used as a tradable asset, utility, or for governance of a project. Whichever the purpose, a token is used exclusively on a smart contract of a specific blockchain. Examples of protocols with their own token are Uniswap (UNI) on Ethereum, PancakeSwap (CAKE) on Binance Smart Chain and SOV on Sovryn.

Coins and tokens have fundamentally different properties. For a coin to be created, a new blockchain infrastructure has to be built.

Creating a token, on the other hand, can be done in minutes and at little cost. It doesn’t require the building of a new infrastructure, as the infrastructure of the underlying blockchain is used to run the protocol. Once deployed, these protocols don’t generate any further costs.

So, think of crypto coins as the currency you use to send, receive, or stake for rewards. Think of tokens as an asset that is usable for a multitude of purposes on an existing blockchain.

Different types of Tokens

But not all tokens are created equal! Just like financial instruments in traditional markets have different properties, so do tokens in the crypto space. But, there will naturally be some overlap and they can belong to more than one category.

  • Equity token: These tokens generate cash flows for their holders. Typically, this is through protocol transaction fees that are generated when an action is performed, such as buying or selling a crypto asset. Sushiswap (SUSHI) is an example of a DeFi protocol that pays out part of its generated fees to SUSHI token holders.
  • Payment token: Payment tokens are crypto assets that function as a means of payment but are not the native asset of a public blockchain. Popular examples are stablecoins such as USDT or USDC which run on several blockchains.

  • Governance token: Decentralized protocols often let their token holders participate in the decision making process. Proposals can be put to vote by the community and token holders can either accept or reject them. Many projects, like Sovryn (SOV) and Uniswap (UNI), allow token holders to participate and vote on decisions concerning the protocol.

  • Utility token: The function of a utility token is to enable the use of a protocol on a smart contract platform. Only holders of the respective token can use the service the protocol is providing. A prime example is the LINK token, which is used to pay for services on the Chainlink network.

  • Non-fungible-token (NFT): NFTs are a little different. While ‘normal’ tokens are interchangeable and indistinguishable from each other, NFT tokens are unique. This is an important point because NFTs can represent ownership of a unique asset. An increasingly popular trend for NFTs is the ownership of digital art, such as CryptoPunks or EtherRocks.  

Tokens on Bitcoin

As outlined above, tokens rely on the smart contract functionality of the underlying blockchain. As the Bitcoin blockchain is not ‘turing-complete’, and thus not fully smart contract enabled, no tokens can be created on top of the Bitcoin blockchain.

However, the development of Bitcoin sidechains has circumvented these limitations. Bitcoin sidechains, which are secured by Bitcoin miners through a process called Merged Mining, have full smart contract capabilities and enable the creation of tokens. These sidechains allow developers to build ecosystems around Bitcoin including DeFi, digital identity and oracle services.

The SOV token

At Sovryn, we are building a full-stack financial operating system on top of Bitcoin. The Sovryn protocol was launched on the RSK sidechain, which uses the rBTC coin. rBTC’s value is pegged 1:1 with Bitcoin that is locked up in the RSK sidechain. To use the Sovryn protocol and carry out transactions on the RSK blockchain, gas fees are paid in rBTC.

Sovryn has launched its own protocol token, SOV. The SOV token is not a currency, nor is it necessary to hold SOV tokens to interact with the Sovryn protocol. The SOV token has been designed to be a representation of a stake in Sovryn’s future.

SOV Tokenomics

In total, 100,000,000 SOV tokens were minted. The tokens are used to drive the project forward on many different levels.

This is how SOV tokens have been allocated:

On the one hand, the SOV token represents voting power. It allows holders to actively participate in the protocol’s decision making process. Additionally, SOV holders have the right to govern newly launched projects on the Sovryn platform, like Sovryn Mynt.

On the other hand, it lets users participate in future rewards. By staking the SOV token, investors are entitled to receive a share of the fees generated by the Sovryn protocol.

Decentralized Finance (DeFi) allows normal people to achieve financial independence instead of relying on centralized financial intermediaries such as brokerages, exchanges, or banks.

Staking SOV is a great way to help you achieve financial sovereignty. When users hold and stake SOV, they can have a say in the direction of the protocol while earning passive income from multiple revenue sources.

As an example, over the next year, SOV stakers are set to earn a percentage of MYNT and ZERO on top of the normal rewards earned from staking.

On the Sovryn protocol, it’s a great time to acquire SOV if you haven’t already.

Once you’ve obtained your SOV, you can visit the dapp to start staking. It’s another brilliant step towards truly claiming your financial ‘Sovrynty’ without relying on centralized banks, exchanges, or entities.

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