Fungible Token
A Fungible Token is a type of digital asset where each unit is identical and interchangeable with others of the same type. Fungible tokens, such as cryptocurrencies like Bitcoin or ERC-20 tokens on Ethereum, have the same value and properties, making them suitable for currency, rewards, and other standardized uses.
What is a Fungible Token?
Fungible tokens represent assets that are uniform in value and can be exchanged one-for-one. They are divisible and standardized, meaning each token holds equal value and can be easily traded.
How Does a Fungible Token Work?
Fungible tokens operate through the following principles:
Standardization: Tokens adhere to standards like ERC-20 on Ethereum, ensuring compatibility across platforms and wallets.
Uniform Value: Each token is worth the same as any other token of the same type, allowing for easy exchange.
Divisibility: Fungible tokens can often be divided into smaller units, like Bitcoin’s satoshis, making them useful for various transaction sizes.
Why are Fungible Tokens Important?
Fungible tokens have widespread applications in the crypto space:
Currency: They are suitable as a medium of exchange, such as BTC or ETH.
Interoperability: Standardized tokens can be used across different DeFi platforms, enabling a broad range of financial applications.
Liquidity: Their interchangeable nature allows for efficient trading and market liquidity.
In summary, fungible tokens are uniform, divisible assets widely used for currency and DeFi applications, facilitating easy exchange and interoperability across platforms.