A token glossary

Layer 2 technologies will be key to helping networks like Ethereum prepare for growth and hit mass adoption. One of the core innovations in the Layer 2 space is ZK-Rollups, a type of solution that uses cryptographic zero-knowledge proofs to verify a piece of information without revealing what the information is. Ethereum ZK-Rollups help bundle transactions away from the network onto new chains, reducing congestion and processing transactions at a high speed and low cost. 

Tokens are the core innovation of blockchain technology. Also known as cryptocurrencies or cryptoassets, tokens can take many different forms, representing ownership in a network, a governance token for a decentralised finance project, or even content such as art. However, all crypto tokens live on open blockchain networks that run on the Internet. There are already thousands of tokens in the ecosystem today, but in the future, there will likely be millions.

If the cryptocurrency movement is successful, it will lay the foundations for a tokenized world. When crypto enthusiasts talk about tokenization, they are referring to this journey in which the world increasingly adopts blockchain and token technology. On a minute level, tokenizing an asset may mean minting a piece of artwork as an NFT or creating a synthetic stock. But these practices contribute to the overall vision for where we are headed-to a freer, fairer world where billions of people interact with tokens every day. 

In the token ecosystem, utility usually refers to how a token can be used. Tokens with utility have a use case, which may incentivise adoption from investors. For example, ETH has utility in paying for Ethereum transactions, buying assets like NFTs, and as a base asset in decentralised finance. 

Proof-of-Stake networks rely on validators for security. Validators are typically required to stake a network’s token and verify or “validate” new transactions, earning a reward in the network’s token for their services. In theory, anyone can become a validator with the right equipment and enough tokens, and the biggest Proof-of-Stake networks have thousands of validators based all over the world. 

As the token ecosystem has grown, the venture capital or “VC” world has become increasingly interested in the space. VCs are investors who typically invest in many different projects or businesses early in their lifetimes in hopes of securing a return on their investment if the project grows. Many successful token projects from Uniswap to Solana have received support from prominent VCs such as the Silicon Valley giants a16z. 

The token movement promises to transform our society forever. Many projects such as Ethereum are hoping to achieve this by building out a decentralised version of the Internet supporting all kinds of applications, from DeFi and NFT services to other innovations that don’t yet exist. This space is also known as Web3, serving as a follow-on from the Internet’s early email and message board era (Web1) and the advent of Big Tech and social media (Web2). Web3 already exists today, but it should be much bigger in the future.

In the token ecosystem, yield typically refers to the return that a token user can get from their holdings. There are many ways to earn yield through tokens, such as staking and depositing tokens in decentralised finance protocols. Yield generation is arguably one of the most promising use cases for tokens, particularly for those who are excluded from traditional banking services. 

Yield farming is an innovation that emerged in the early days of decentralised finance. It refers to the practice of depositing tokens to a project in order to earn additional tokens. The best yield farmers use complex strategies and frequently move across different projects to maximise their returns.