Decentralized application tokens or dApp tokens serve as a means of coordinating activities within applications that operate on blockchains. These tokens enable various services such as trading, lending, data storage, and even blog publishing. Their primary functions include facilitating access to services, incentivizing users, and granting holders the ability to participate in governance and strategic decision-making processes.

It is important to note that dApp tokens differ from layer 1 tokens like bitcoin and ether, which are essential for ensuring the secure functioning of a blockchain. DApp tokens do not play a role in activities such as mining, staking, or any other aspects related to blockchain security.

Presently, dApp tokens have become an integral component of the cryptocurrency ecosystem, collectively facilitating user transactions worth $182.5 billion per year. Among the most prominent dApp tokens is Uniswap.

Varieties of DApp Tokens

Utility Tokens

Utility tokens operate similarly to airline miles or credit card reward points, providing rewards to users for utilizing the dApp. A prime example is the basic attention token (BAT). In conventional advertising models, website owners receive the revenue generated from advertisements. However, the basic attention token employs smart contracts, integrated wallets, and the Brave browser to compensate consumers for opting to view advertisements.

Two additional utility tokens on the Ethereum network are Golem and Sia. Golem rewards users with its native token for supplying computational power. Meanwhile, Sia compensates users with its native token for offering cloud storage capacity. These tokens, alongside smart contracts, facilitate the functioning of dApp. Moreover, they eliminate the need for a centralized entity to identify and remunerate users.

Governance

DApp tokens are also utilized as voting rights within a decentralized application or a decentralized autonomous organization (DAO). For instance, tokens associated with DeFi protocols like Uniswap or Maker DAO enable users to participate in a decentralized governance process. The decentralized governants decided the future course of the protocol. Apecoin DAO, backed by the Bored Ape Yacht Club NFT community, employs its native Apecoin token for voting on matters such as treasury management and collaborations related to branding. Another example is Gitcoin tokens, which empower holders to vote on developer grants.

Access Via DApp Tokens

Access tokens serve the purpose of granting entry to social events or providing access to specific features within the dApp. Non-fungible token (NFT) holders are increasingly embracing physical-event access tokens. These tokens are exclusively available to individuals who connect their wallets and verify ownership of the required NFT.

Access tokens can also take on a fungible form and enable access to chat groups, governance forums, airdrops, and other unique functionalities. Snapshot, for instance, acts as a decentralized voting tool that verifies the possession of the correct token in users’ digital wallets before granting access to a specific governance forum.

Token Distribution

While most layer 1 protocol employ a mining or minting process to generate new tokens as rewards for miners and validators continuously, DApp tokens typically have a predetermined and fixed supply. This existing token supply is usually sold to investors or made available to the public in order to secure funding for the project. The allocated tokens may be allocated to various purposes such as the project’s treasury, a community fund, or other designated entities. Typically, a project’s white paper provides detailed information about this distribution strategy.

Furthermore, it is common for dApps to conduct unsolicited token distributions, commonly known as airdrops, during the early stages of a project. These airdrops serve as incentives for promoting and using the application, as well as stimulating user growth. For instance, Ethereum Name Service rewarded early users who owned an .eth domain name with governance tokens when they created a DAO.

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