Altcoins are any other cryptocurrencies than Bitcoin. When money flows into altcoins faster than it flows into Bitcoin or If 75% of the Top 50 coins perform better than Bitcoin over the last season (90 days), It will be called an Altcoin Season.

In order to find out whether Altcoins are in a downtrend or uptrend against BTC, we can use Bitcoin dominance. It is a measure of how much of the total market cap of crypto is comprised of Bitcoin. When BTC Dominance increases, alts, on the whole, lose value against BTC. In This article we’ll explore different types of Altcoins.

Payment Tokens

Payment tokens, built on their own blockchains, serve as mediums of exchange facilitating purchases, sales, and transactions. Examples like Bitcoin and Ethereum exemplify this functionality. However, a drawback of payment tokens lies in their price volatility, subjecting businesses that accept them to fluctuating values. Consequently, market downturns can result in reduced funds for these enterprises.

Stablecoins

Stablecoins, a subset of tokens, maintain a value pegged to an external asset. Most commonly, stablecoins are fiat-backed, wherein the issuer holds corresponding real-world currency in reserve, issuing tokens that represent these holdings. They were introduced to mitigate the cryptocurrency market’s volatility and stabilize its valuation.

Stablecoins can be anchored to various assets, including major currencies like the Dollar or Euro, precious commodities like gold, real estate, and even other tokens. Some employ algorithmic governance for stability. Well-known examples include USDC, USDT, and Dai.

Security tokens

Security tokens are Considered financial instruments under the securities laws of many countries. They are digital assets that demonstrate ownership of the project and they transfer value from an asset or bundle of assets. Security tokens can be the digital form of traditional investments like stocks, bonds and other securitized assets.

A security token functions as an investment contract representing ownership shares in a company or underlying asset, directly correlating its value with the entity’s valuation. These tokens serve as vital tools in company fundraising endeavors. For instance, companies seeking capital for projects can fractionalize ownership via digital tokens, which are subsequently offered to investors on compliant exchanges supporting digital security tokens.

Tokenization, the process of creating security tokens, involves selecting investment criteria, inputting relevant data into the blockchain, and generating the token. Although not typically accessible to retail investors presently, numerous institutions are actively developing and preparing to offer security tokens in the near future.

Utility Tokens

Utility tokens serve as integral tools within blockchain ecosystems, facilitating interactions without conveying ownership stakes in the project. Unlike investment-oriented tokens, utility tokens do not yield returns, and their value remains disconnected from the asset’s valuation. Issued solely for utilization within the issuer’s ecosystem, they grant access to various goods or services. These may encompass features within decentralized application (dApp) ecosystems, decentralized exchanges (DEXs), Metaverses, or Web3 platforms.

Certain utility coins may also serve purposes like covering network fees or accessing rewards. Typically distributed during Initial Coin Offerings (ICOs) or Initial DEX Offerings (IDOs), examples of utility tokens include Ethereum (ETH) , Uniswap (UNI) and Chainlink (LINK)

Governance tokens, a subset of utility tokens, empower holders to participate in protocol improvement proposals through voting mechanisms. For example Aave (AAVE) is a utility token which is a governance token as well.

DeFi Tokens

DeFi tokens play a crucial role across decentralized ecosystems, powering decentralized exchanges, lending platforms, and borrowing protocols. A prime example is the Lido protocol, where users can stake Ethereum to generate STETH tokens.

Conclusion

Altcoins exhibit diversity, often categorized by distinct features like intended use, blockchain technology, and market positioning. However, coins may belong to multiple categories simultaneously. For instance, a payment token can transform into a security token if actively traded on exchanges and treated as an investment vehicle. Similarly, utility tokens can assume characteristics of security tokens if traded on secondary markets for profit. Additionally, certain DeFi tokens serve dual roles as governance or liquidity tokens.

Check out my article about eco-friendly blockchains:

About Crypto Diva

I’m already in the Future… Meet me there! Blockchain Technology is my passion and I have dedicated my career and research path to DeFi. My ultimate goal is to encourage more female professionals in the DeFi industry.

As the Sales and Marketing Manager of coinIX & COINVEST, I’ve got the privilege of being in close contact with Blockchain investment firms, as well as the innovative web3 projects which are creating the foundations the future financial world. I love to make the impossible possible and i’m willing to go the extra mile for that. Be my companion in my DeFi journey and I’ll show you everything.

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Sources:

1. Investopedia
2. Medium articles