Smart Token

Understanding Smart Tokens

If we consider that “tokens” now refer to all user-generated assets containing value that comply with blockchain network standards, then “smart tokens” are simply tokens that not only transmit value but also carry all the necessary information to execute a transaction simultaneously.

Regular tokens only transmit value, while smart tokens have the added feature of built-in programmability to manipulate that value.

Smart tokens achieve this by incorporating smart contracts that can authorize a transaction using three layers of information:

• The asset or source of value, such as a wallet.
• A set of rules determined by the token issuer, which define access rights, conditions, and timing. For example, a data provider may have access rights at the end of every month if their services have been used.
• A state that tracks the token value based on the set of rules. For instance, the state will record if the full amount of an invoiced data bill has been paid and adjust the balance accordingly.

Smart tokens contain additional information, such as counterpart identity and invoicing data.

The main advantage of tokenization is that unlawfully intercepted payment authorization data becomes valueless as it is replaced by a token. This allows the data to remain hidden in plain sight.

In 2017, the Bancor decentralized trading protocol introduced one of the earliest popular standards for smart tokens. The company launched its own “smart tokens” that utilized smart contracts to enable direct convertibility within the tokens themselves.

The use case was simple: these tokens could be bought or sold directly through their own smart contract, eliminating the need for exchanges or matching services. This enabled direct on-chain token interactions, unlike the typical DEX interactions seen today.

Author:

PlasmaFinance is a DeFi dashboard that aggregates the most popular decentralized finance protocols from multiple blockchains. The PlasmaFinance platform offers comprehensive analytics, user-friendly tools, and access to the most profitable DeFi yields across various protocols.

PlasmaFinance includes a suite of DeFi products, including its own PlasmaSwap DEX, advanced trading and gas optimization tools, a fiat on/off ramp for DeFi, and an IDO launchpad called SpacePort.