What kind of utility do fungible tokens have?‍

1. Means of payment

Arguably the most obvious utility for a token is a means of payment for gas fees on the blockchain. This utility is implemented for most layer 1 and 2 protocols’ tokens, like BTC, ETH, MATIC, ADA, or VLX. Aside from that, tokens of decentralized applications built on top of an existing blockchain give holders similar utility to pay for internal products and services. For example, tokens like SAND and AXIE are the utility tokens used throughout in-game ecosystems as the basis for transactions and interactions.‍

2. Farming‍

Yield Farming utility comes with Decentralized Exchanges (DEXs). It allows users to earn tokens while supporting the exchange with liquidity. In order to participate in farms, users should stake two tokens to get Liquidity Pool (LP) Tokens, which they then stake in the farm to earn rewards. Although farming is a great way to make passive revenue, by keeping your position in different tokens, it is important to remember that this benefit comes with the risk of impermanent loss due to market fluctuation and arbitrage.‍

3. Staking

Yet another way to generate passive income for token holders. As opposed to farming, staking doesn’t require paired tokens, implying less risk to the investor. Holders only need to stake one token to start earning other tokens or more of the same token. For example, Pancake Swap allows users to stake CAKE to earn tokens of other projects.‍

4. Governance or ICO

By implementing a governance utility, tokens can provide owners with the rights to shape the future of the protocol or Dapp. For example, Maker (MKR) is the governance token for the DAI Credit System. MKR holders have the important responsibility of making decisions around the risk that will impact the system’s future. AAVE, for instance, offers users the privilege to vote on grants for projects that are being built within the Aave network. A simple “Yay” or “Nay” while connecting your crypto wallet with a few Aave tokens is an example of how a voting system is created on the network. Another example is CAKE — a native token for Pancake Swap DEX, that on top of many other things, gives holders the ability to vote on proposals relating to the PancakeSwap ecosystem.‍

The innovation doesn’t stay still, and we believe we’ll see more interesting and valuable utilities coming.