User Guide: Tokens

The CLV wallet is a multi-chain all-in-one wallet for day-to-day, DeFi, and Gaming purposes. This means CLV Wallet supports various blockchain networks, including Ethereum, Polkadot, Solana, and Tron. With that said, CLV also supports a large variety of tokens. The complete list of supported networks can be during the “Adding of a Token” process.

 

With that in mind, this article will seek to give an explanation regarding tokens that acknowledges this multi-chain reality.

 

One of the basic features of blockchain technology is the ability to track assets moving between parties; for this reason, it’s also called distributed ledger technology: in the end, it’s all a series of ledgers being synced across the network. So how do we track those assets? Well, they need to be quantified in some way: enter tokens.

 

1.Network-Native Tokens

 

Most blockchain networks, whether fully public or not, most blockchain networks utilize some sort of incentivized consensus mechanism to pay for computing power. Generally, the network uses a default token, or “native currency,” for those payments. For example, Ethereum mainnet uses ETH for this purpose, but each network will have its own standard. This is important for the user because unless they hold some amount of the network’s native currency, they may not be able to pay for transactions, gas fees, etc. Sometimes network-native tokens have significant differences from other tokens on the network (more on the quirks of ETH below), but in general, they’re what we call fungible tokens.

 

2.Fungible tokens

 

Fungible tokens are those which are not unique. They are interchangeable, just like a metallic coin or a paper bill of currency. True, on most networks, they’re more traceable than a paper banknote–remember, there’s a ledger of what tokens go where–but they’re intended to be used as a medium of exchange for one purpose or another. The network currency tokens described above are an example of fungible tokens.

 

3.Fungible token standards

 

(1)ERC-20 Tokens

 

As blockchain networks have developed, standards have been put in place as to how tokens should be programmed; how they act, programmatically speaking. For example, on the Ethereum network, many fungible tokens conform to a standard called ERC-20. So, your BNB, USDT, LINK, and DAI tokens, to name a few, are ERC-20 tokens. CLV Wallet keeps a list of the most popular tokens and automatically detects those, but no worries, if you get a less common one, you can easily add it manually.

And here’s the significant part–you can use CLV Wallet on any Ethereum-compatible network, with any Ethereum-compatible token, following the same process.

Why? Simply put, Ethereum has served as a roadmap and standard-creating paradigm for blockchain networks. In other words, most people building networks want to ensure that their networks are compatible with Ethereum. So that ends up meaning that CLV Wallet will work just the same on a new network as it does on Ethereum mainnet.

 

(2)ERC-777 Tokens

 

This alternate standard was offered as an improvement over ERC-20 tokens in that it has greater capabilities, particularly the ability to notify smart contracts or wallets when an ERC-777 token is transferred to such an entity. Of course, this means that the receiving entity has to be programmed to receive and work with that notification, which many are not. There are a number of ERC-777 tokens out there, but the ERC-20 standard by far holds predominance.

 

(3)Wrapped Tokens

 

While these standards have existed for some time, they only existed at the inception of Ethereum. As such, ETH itself, Ether, the native currency of the Ethereum mainnet, is not ERC-20 compliant. This oddity has led to the creation of Wrapped Ether, or WETH: an ERC-20 token that holds an equivalent value of the ETH for which it is swapped but with ERC-20 functionality.

The wrappers don’t stop there, though: wrapping a token is a way of bringing a token from one network to another, like wrapped Bitcoin or MATIC tokens on Ethereum mainnet.

 

(4)Stablecoins

 

One prominent class of ERC-20 tokens are so-called ‘stablecoins,’ that is, fungible tokens whose value per token is pegged to some external value. Many are pegged to fiat currencies, commodity markets, or high-value items like gold.

Stablecoins have some considerable nuances and complexities associated with them due to the fact that in many jurisdictions, they are required to be collateralized; in other words, if you’re issuing a coin that is pegged to the US Dollar, you may need to hold in reserve one US Dollar for every coin you issue. Due to these requirements, some stablecoins are controlled by more centralized entities.

Another approach to collateralizing a stablecoins is through depositing value in other cryptocurrencies. This represents a more decentralized option, which some consider closer to the ethos of Web3. Due to the volatility of cryptocurrencies, a crypto-collateralized stablecoin may need to hold in deposit a higher amount of value as collateral than a fiat-backed stablecoin.

 

(5)Reflection tokens

 

Most users get into DeFi to grow their bags — often through staking, yield farming, liquidity mining, and other complex mechanisms. Reflection tokens are set up to scratch this itch for passive income without the holder ever having to engage in any DeFi activities: you’re simply awarded even more tokens just for having them in your wallet.

These payments–orchestrated by a smart contract–are proportional to the quantity of tokens the user holds and are financed through what amounts to taxation on transactions. The advantages are obvious: as the incentive to hold is so strong, the token is protected from large-scale sell-offs. You’re also free to use the token in DeFi if you want to, generating yields on top of the redistributive payments.

Reflection tokens are a novel concept, with many current examples that have been around for too short a time to derive any conclusions about their long-term sustainability or viability. As always, with new crypto projects, DYOR, and stay safe

 

4.Non-fungible token standards

 

(1)ERC-721 Tokens

 

Similar to the dynamic between ERC-20 and ERC-721, there are two main NFT standards, and the first and older of the two are more dominant–although there are plenty of ERC-1155 tokens out there as well. This is the standard that’s been used to create CryptoKitties, the Ethereum Name Service (ENS), CryptoPunks, Cool Cats (so many cats)–the list goes on.

 

(2)ERC-1155 Tokens

 

Developed subsequently to the 721 standards, the ERC-1155 standard is incredibly powerful and, while used in NFT collections, may come to be used in much more complex and nuanced ways. A smart contract that is coded according to ERC-1155 can issue a number of both fungible and non-fungible contracts. This could be particularly useful in developing a video game, for example: imagine a video game world where the users need life tokens, or currency tokens to spend in the game, which would be fungible; however, the characters themselves could be represented by non-fungible tokens, each one of them unique. With ERC-1155, all of this could be possible with a single, smart contract.