Scroll to top

This article aims to get you acquainted with another novel concept in the age of the digital economy – the token. Much like in a traditional sense, tokens are units of value issued by a private entity and accepted by a designated community. They are native to the blockchain, and even though tokens bear many similarities to cryptocurrency, they serve a much broader purpose and can be utilized in a wider range of applications.


Tokens can be used to grant additional rights within a network, conduct payments or transfer data. Other usage types include acting as a stock, as a means to obtain extra services or better user experiences. Tokens can be used in whichever way the issuing entity designs them, so let’s talk about some of the most popular types that exist today.

Token Types

Token Types

Utility Tokens

The perfect analogy for this is when you buy tokens to attend Disneyland or any other amusement park. It is a local currency of sorts, which you can exchange for rides, snacks, and gifts inside the park. Now, replace the park with a company, plastic tokens with digital ones, and think of products and services of your preference. The key difference here is that your amusement park/company is still closed – and you buy the tokens so that it could actually open. This is the basic premise behind issuing and buying tokens for the Initial Coin Offering (ICO).

Equity tokens

ICO is virtually equal to IPO when you issue equity tokens. Usually, developers use this type of tokens when a startup does not require to establish cryptocurrency and related operations. Investors will get a fixed commission and automatically become stakeholders in company decisions – that’s the risk/reward for supporting the project in its early stages.

Credit tokens

This is works a lot like banking, although much more digital. Credit tokens are essentially loans a holder gives to a startup expecting a payout of the X tokens’ worth plus a fixed percentage of its value. Essentially, credit tokens are another way of raising money for your project.

Token developers can design the tokens whichever way they want and assign value accordingly, therefore any one of the types mentioned can be combined to create even more variations.  Another important feature you need to consider before issuing tokens is the appropriate standard.

Join Blockchain & DApps Roadmap by DataRoot Labs on⚡️
The Blockchain & DApps Roadmap covers everything from the cryptographic underpinnings of blockchain technology to enabling decentralized applications on Ethereum platform. In 2 months you will learn how to deploy Smart Contracts and create fully functional DApps.

Tokens Distribution System

Token Standards

Tokens are issued under different standards, with ERC-20 being the original and most used standard, followed by augmented versions like ERC-223, ERC-621, and others. ERC stands for Ethereum Request for Comments (RFC). RFC is a directive that contains technical and organizational information about the Internet. It follows that ERC is the Ethereum adaptation of the original RFC.

ERC standards are created by the Ethereum community to define the rules of interaction between the users of the Ethereum blockchain ecosystem. Whenever developers create new ERC standards, they need to be approved by the Ethereum community members. Let’s looks at some of the important standards used to issue tokens in live projects.

Tokens Standards


ERC-20 is the most common and well-known token standard. The development of ERC-20 began in 2015 and was formalized by 2017. Tokens issued under the ERC-20 standard can be transferred to different addresses and exchanged for other currencies, and the standard facilitates the compatibility of tokens with new products and services.


The ERC-223 token standard was created in 2017 as an upgraded version of ERC-20 that addresses its most common pitfalls. For example, if you mistype an address and transfer ERC-20 tokens to a wrong recipient that is unaware of or doesn’t work with sent tokens, they will be simply lost without recovery options. The ERC-223 standard prevents this while consuming half of the transaction fee of ERC-20 transfers. The new standard is fully compatible with every ERC-20 function, contract, and service.

ERC 621

ERC-621 is an extension of the ERC-20 token standard that adds two important features – the ability to increase and decrease the token supply in circulation. ERC-20 allows a single event for issuing tokens. This restricts the supply to a certain amount which can’t be altered. ERC-621 offers the flexibility for developers to modify the existing token quantity.


ERC-721 is a non-fungible token. In ERC-20 and ERC-223 standards, the token supply is fungible (i.e. a single unit of that token is equal to another). This makes trading them a lot easier. In case you need to add extra parameters to the token design and price them differently within the same platform, the ERC-721 is your go-to standard, as it allows the tokens to be non-identical.


Proposed in early 2018, ERC-827 is another expansion to the ERC-20 token standard. It took only 30 lines of additional code to improve ERC-20 in a way that allows the new ERC-827 standard to transfer values, data and let third parties spend tokens with the holder’s permission.

Token Issue

Despite Ethereum considered as the go-to platform for most ICOs, the blockchain is not without its flows in scalability, security and so on. As a huge platform that’s very centralized and persistent to change, there will be no rapid solutions to existing problems. Emerging platforms like Waves, Stellar or Cardano might be the next wave of blockchain solutions that challenge the status quo and allows for more flexibility in token issue events.


The ERC-20 token standard is the main reason behind global commitment to Ethereum and its ongoing success. The tokens issued under the standard are open source, therefore suitable for pretty much every imaginable purpose. Another important feature is the token’s universal acceptance – every exchange or wallet that supports Ether can integrate ERC-20 tokens. The platform operates its own programming language called Solidity. While issuing tokens on Ethereum is a relatively easy thing to do, you will need to be proficient in Solidity to be able to customize your currency for specific purposes.


Waves is a Russian-based project for storing, trading, managing and issuing your digital assets. The platform was founded in 2016 by Alexandr Ivanov, and it currently stands as the second most popular tool used to issue ICO tokens behind Ethereum. Waves users don’t need to code complicated contracts – all the required functionality can be added using plug-ins. The current version of the client contains a wallet, the platform’s version of a decentralized exchange which doubles as a tool to release tokens.


Stellar is a platform that connects banks, payment systems, and people. It helps to move money quickly, reliably, and at almost no cost. The project was co-founded by Jed McCaleb, who also had a hand in creating Ripple and Mt. Gox. The platform boasts its own decentralized exchange, so the tokens sold during an ICO can start trading from day 1. The marketing behind it claims Stellar to be cheaper and faster than other platforms, with a 5 seconds settlement time and the cost of 100,000 transactions standing at just 1 cent.

ICO Market in 2018


Token Distribution

The best token projects focus on building and governing networks. Token sales are used to facilitate distribution and raise money, and innovation in token sale models spiked significantly the last couple of months.

Until recently, the field was comprised of two distinct distribution models. One model is capped sales, which sells a fixed number of tokens at a fixed price and quickly sell out. The other is uncapped, which sells as many tokens as people are willing to buy. With a surge of interest and popularity, new models like hybrid capped sales, reverse Dutch auctions, proportional refunds, and many other mechanisms have entered the fray.

Many of these mechanisms were created in response to perceived flaws of previous designs. Almost all significant sales events like Maidsafe, BAT, and even the ground-breaking Ethereum sale were met with constructive criticism. While the ideal mechanism with all desired properties is yet to be discovered, take a look at some of the distribution models often used in token sales.

Uncapped sales with fixed rates. Buyers exchange cryptocurrency or fiat money for tokens at a fixed ratio. Early contributors receive better rates, and the model has a specific period of contribution.

Hard and soft caps. In a hard cap model, sales stop whenever the predetermined capacity number is reached. It usually has a specific period of contribution. In a soft cap sale, when A cap is set and achieved there is an extended time-based closing period until the full closure of the sale.

Dutch auction. Much like in a traditional auction, the price of the offering is set after recording all bids and determining the highest price at which the total offering can be sold. The highest bids are accepted until the sum of the desired quantities is enough to sell all the offered tokens. After the last bid is accepted, all bidders with an accepted bid get the last bid’s price for each token.

Reverse Dutch auction. According to this model, the portion of tokens given to purchasers depends on how long the sale takes to conclude. If the sale finishes on the first day, only X% of total tokens are distributed amongst the bidders. If it finishes on the second day, X+Y% of total tokens are distributed, and so forth.

Dynamic ceiling. A mixed system with a series of mini hard caps set at specific sale intervals. Larger contributions that go over the cap would have to be split into much smaller transactions to come through, thereby placing a regulatory limit and incurring more costs per transaction. If a transaction goes beyond the ceiling, it is rejected.

Join Blockchain & DApps Roadmap by DataRoot Labs on⚡️
The Blockchain & DApps Roadmap covers everything from the cryptographic underpinnings of blockchain technology to enabling decentralized applications on Ethereum platform. In 2 months you will learn how to deploy Smart Contracts and create fully functional DApps.

With so many things at play, the token standards, issue, and distribution mechanisms may be a bit much for a beginner. We are always here to help in case you need expert advice from DataRoot Labs blockchain team. Should you have any questions about implementing a blockchain project or launching your ICO – do not hesitate to reach out.

Related posts