16. Tokens: Cryptocurrencies, Fungible Tokens, and Stablecoins

a token is money or property recorded as a line in a public spreadsheet that nobody owns outright, updated according to fixed, automatically enforced rules. There is no physical object, and there is no bank manager — and that absence of anyone "in charge" is the whole point of Web3.

a coin is the blockchain's own built-in money; a token is something a project creates using a blockchain. ETH is a coin. The large majority of the assets people trade — including most stablecoins, governance tokens, and the countless "meme coins" — are technically tokens riding on a blockchain that someone else maintains.

ERC-20 is an agreed-upon shape for tokens, like a standard electrical socket. It lets any token plug into any wallet or exchange without special wiring. The downside of making token creation trivial is that the world now contains hundreds of thousands of them, the overwhelming majority worthless.

a fungible token is like a dollar bill or a grain of rice — one is as good as another, so it works as money. A non-fungible token (next chapter) is like a named, numbered painting — each is unique. That difference is the entire dividing line between Chapter 16 and Chapter 17.

an arcade token, a co-op membership share, and a lottery-style bet are three completely different kinds of value — yet tokens of all three kinds trade side by side under the same label, and much of crypto marketing depends on blurring them together.

USDC and USDT are digital dollars backed by a company holding real dollars and Treasury bonds. They work well and are heavily used — but you are trusting a private company to actually hold the reserves it claims, the same kind of trust Web3 set out to remove. Tether's $41 million fine for overstating its backing shows that trust is not automatic.

DAI keeps its peg not by a company holding cash but by forcing everyone who creates DAI to lock up more crypto than the DAI is worth, with a robot that auctions the collateral the moment the cushion gets thin. It is clunky and capital-hungry, but that extra cushion is exactly why it withstood the 2022 crash that killed its algorithmic cousin.

TerraUSD promised to stay worth a dollar with nothing real backing it — only a sister token, crowd confidence, and an unsustainable ~20% interest rate. When confidence cracked, the rescue mechanism printed the sister token without limit, destroying its value and the peg together, and roughly $40 billion evaporated in a week. The takeaway: backing matters, and "stable" is a claim to interrogate, not a label to trust.

if a token is really an investment dressed up as a "utility," the law may treat it like a stock, and much of crypto's legal drama is a fight over which tokens count.

a token is trivially easy to create, which is why the world is full of them, why fortunes have been made and lost on assets with no purpose beyond their own rising price, and why "number go up" became a half-joking creed. None of that proves tokens are worthless — stablecoins are genuinely useful — but it means the burden of proof for any individual token sits squarely on its issuer, and a careful person asks what backs the promise before believing it.