In the world of cryptocurrencies, having your token offers several advantages, such as a wide range of functions and the ability to solve common problems. This article will explore why tokens are necessary and why projects strive to launch their cryptocurrency.

What is a token and why do projects need it?

For those who are new to the world of cryptocurrencies, tokens may seem complex and confusing as a tool. However, in reality, they are a simple and flexible way to attract participation and funding for a project’s product.

A token is a digital asset that operates on blockchain technology. Most often, tokens serve as an internal currency of a particular blockchain, allowing users to interact with decentralized instruments and services.

Let’s take a closer look at the functions that tokens can perform.

What functions do tokens perform in the world of cryptocurrencies?

Some of the most common uses of tokens include:

• Investment: Tokens allow projects to attract funding from investors, who can purchase tokens during an Initial Coin Offering (ICO).
• Participation in the project’s ecosystem: Tokens can be used as a means of payment for products and services provided by the project.
• Voting and project management: Tokens can be used for voting on various decisions related to the development of the project, as well as for participation in the project’s management.
• Additional income: Some projects offer token holders additional income in the form of dividends or profit distributions.
• Incentivizing product usage: Tokens can be used as an incentive, such as providing bonuses to holders for using specific functions.
• Storage and exchange: Tokens can serve as a means of transfer or storage of value.

Depending on the project’s needs and goals, each token is used differently, and the above list is just a few examples of their usage. This functionality helps to understand why projects need their tokens, but for a better understanding, let’s look at a few examples that will help to clarify this issue.

Why do projects issue their tokens?

There are two major types of projects – L1 and L2. The former cannot exist without a native cryptocurrency, as it solves network security issues and serves as the main means of payment within the ecosystem. L2 projects can function perfectly well without their crypto.

However, L2 projects also issue their tokens, mostly for fundraising and further development purposes. Token issuance is also a powerful marketing tool, allowing for the attraction of new users and the building of a loyal community.

Jamie Dimon, CEO of JPMorgan Chase, once said, “Tokens are becoming increasingly popular in the crypto world because they represent a convenient and flexible tool for financing projects and ecosystem development. Thanks to tokens, projects gain access to additional sources of funding, while users have the opportunity to participate in project development and receive additional income.”

In conclusion

It can be confidently stated that tokens are a multifunctional tool that allows for the attraction of investments, the building of a loyal user base, and the expansion of the functionality of their products. Due to their flexibility and universality, tokens are becoming increasingly popular in the crypto world and are attractive assets for investors.

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