A token glossary

Layer 1 is a term used to describe base layer blockchains. Layer 1 blockchains settle transactions without relying on another network and often support additional applications and protocols. As such, they need to be sufficiently decentralised, secure, and scalable. Bitcoin, Ethereum, and Solana can all be thought of as independent Layer 1 networks. 

Layer 2 is a framework that gets built on top of a Layer 1 network in hopes of increasing a blockchain’s scalability. Layer 2 networks are independent blockchains that carry traffic off the base chain without compromising on the network’s security, which often brings advantages like higher speeds and lower costs. Ethereum has committed to building out an expansive Layer 2 ecosystem to achieve true scalability. 

Liquidity is a term that originated in the traditional finance world but has also found popular use in the token ecosystem. Liquidity can refer to the volume of activity in a market or an entity’s available assets. When a person or company has a lack of liquid assets, that means they are strapped for cash. In the decentralised finance ecosystem, deep liquidity or high volume markets are desirable. 

Liquidity mining is a core innovation of the decentralised finance space. Liquidity miners are DeFi users who deposit tokens in smart contracts, allowing other users to access their tokens through a pool. In return, they earn new tokens known as LP (“liquidity provision”) rewards. 

In the token ecosystem, staking refers to a practice where token holders lock up their tokens to receive additional yield in that token, usually in exchange for securing a network. The popularity of staking has also given rise to “liquid staking,” where token holders receive a liquid token when they lock up their token. This has some advantages over staking as it allows the user to generate extra yield with the token, but it also carries more risk. 

Mainnet refers to a blockchain network or protocol once it is fully deployed and processing transactions. When a network is live on mainnet, it is running and able to host activity with users’ tokens, contrary to a project running on testnet. The term is also sometimes used in reference to Ethereum and its Layer 2 ecosystem because Layer 2 networks leverage the security of mainnet while taking away some of the load to reduce congestion. 

While every token has a price per unit, the market capitalisation denotes the overall value of the network. In the token ecosystem, the market capitalisation of any given project is the equivalent of the value of the total circulating token supply. Bitcoin and Ethereum have the largest market capitalisations in the ecosystem, collectively accounting for about 65% of the market. 

As crypto is an Internet-based movement driven by online communities, memes play an important role in the space. The advent of blockchain has given rise to “meme coins,” tokens that embody a specific meme or idea. Popular examples of meme coins include the dog-themed tokens Dogecoin and Shiba Inu, but they can also take the form of NFTs. Bitcoin can also be thought of as an early meme coin as its community propagated memes to help it grow. 

Though the Metaverse is not yet fully defined, it generally refers to a next-generation Internet that will encompass virtual worlds where users can connect, work, play, and participate in all kinds of other activities. Crypto enthusiasts believe that tokens will play a role in the Metaverse’s evolution, empowering users to earn in ways that were previously unimaginable. The ecosystem is already home to several token-based Metaverse games.