What are the different types of tokens on Cardano?

Cardano supports multiple types of tokens, thanks to its multi-asset ledger introduced with the Mary hard fork in March 2021. These tokens are categorized based on their purpose and how they interact with the Cardano blockchain. Here are the main types of tokens on Cardano:

1. ADA

Native cryptocurrency of the Cardano blockchain.
Used for transaction fees, staking, and governance within the network.
ADA is required to pay for transaction costs and is also used for staking in Cardano’s proof-of-stake consensus mechanism.

2. Native Tokens

Cardano allows the creation of native tokens without the need for smart contracts. These are assets that exist and operate natively on the Cardano blockchain.
Native tokens can represent cryptocurrencies, stablecoins, or any other digital assets, including NFTs.
Examples of native tokens include COTI, AGIX (SingularityNET), and ADAX.

Key Features of Native Tokens:

No need for smart contracts: Unlike Ethereum’s ERC-20 tokens, native tokens on Cardano are directly supported by the ledger, reducing the risk of errors and lowering transaction costs.
Built-in support: The Cardano ledger natively handles multiple assets, meaning native tokens benefit from the same security and efficiency as ADA.

3. Non-Fungible Tokens (NFTs)

NFTs are unique, indivisible tokens representing ownership of digital or physical assets, such as artwork, music, or collectibles.
Cardano supports the creation of NFTs natively, allowing artists and creators to mint and trade NFTs on its blockchain.
Cardano-based NFTs are popular within the ecosystem, with marketplaces like CNFT.io enabling users to buy and sell NFTs.

4. Utility Tokens

These tokens are used to provide access to specific functionalities or services within decentralized applications (dApps) on Cardano.
They often represent voting power, staking rewards, or the ability to participate in network activities within certain platforms.
SUNDAE (SundaeSwap’s governance token) and MELD (a DeFi protocol token on Cardano) are examples of utility tokens.

5. Security Tokens

Security tokens represent ownership of assets such as shares in a company or investment products. These tokens may be subject to regulatory oversight and often serve as digitized versions of traditional securities.
While Cardano supports this functionality, security tokens are still emerging on the platform, and legal and regulatory frameworks need to be adhered to.

6. Stablecoins

Stablecoins on Cardano are digital currencies pegged to a stable asset like the US dollar or a basket of assets, aiming to minimize price volatility.
DJED is an algorithmic stablecoin being developed for Cardano by COTI, backed by cryptocurrency reserves and designed for stability within decentralized finance (DeFi) applications.

7. Governance Tokens

These tokens are used to vote on proposals related to the governance and development of decentralized protocols or projects on Cardano.
Governance tokens give holders the ability to influence decisions about protocol upgrades, changes to the system, or distribution of rewards within the platform.

8. Wrapped Tokens

Wrapped tokens represent assets from other blockchains, allowing users to trade or use them within the Cardano ecosystem.
This interoperability helps bridge different blockchain ecosystems, although Cardano’s focus on native tokens reduces the need for wrapping when dealing with assets created within Cardano itself.

Summary of Token Types on Cardano:

ADA: Native cryptocurrency used for transactions, staking, and governance.
Native Tokens: General tokens for cryptocurrencies, assets, or collectibles on Cardano.
NFTs: Unique tokens representing ownership of digital or physical assets.
Utility Tokens: Tokens providing specific functionalities within dApps.
Security Tokens: Tokens representing shares or securities (regulated).
Stablecoins: Tokens pegged to stable assets (e.g., DJED).
Governance Tokens: Tokens that allow holders to vote on platform governance.
Wrapped Tokens: Tokens representing assets from other blockchains.

These different token types enable a broad range of financial and digital applications, from decentralized finance (DeFi) and gaming to digital art and governance, all within the Cardano ecosystem.