Fungible tokens are a type of cryptographic token on the blockchain, which are interchangeable with each other, like traditional fiat currencies such as USD, EUR, or JPY. They are constructed using standard protocols like the ERC-20 for Ethereum, and they serve various purposes, from being used as a currency, to representing voting rights, and more. Fungibility implies that each unit of the token is exactly the same as every other unit.
Examples of Fungible Token Use Cases
Cryptocurrencies: The most common application of fungible tokens is cryptocurrencies like Bitcoin (BTC) and Ether (ETH). In these systems, each individual token is identical to the next, ensuring any BTC or ETH token you own or receive will hold the same value as any other.
Utility Tokens: Utility tokens offer users access to a product or service provided by a specific project or platform. An example of this is the Binance Coin (BNB). BNB is used on the Binance exchange platform for trading fees, participating in token sales, and more.
Stablecoins are a type of cryptocurrency designed to minimize volatility. They achieve this by pegging their value to a reserve of assets, typically fiat currencies like USD. Examples of stablecoins include Tether (USDT) and USD Coin (USDC).
In Decentralized Autonomous Organizations (DAOs), governance tokens are used to grant holders voting rights within the community. One example is Maker (MKR). Holding MKR allows holders to participate in the governance of the Maker Protocol, voting on important issues such as risk parameters.
Certain platforms offer reward tokens to incentivize user engagement or participation. An instance of this is Compound's COMP token, which is distributed to users as they interact with the protocol.