Crypto Foundations · Crypto Trading Guide

A coin, a token and a stablecoin can carry very different rights and risks. Classify the instrument before comparing its price.

Identify the instrument

A native coin belongs to its network’s base system. A token can be created through a contract on another network. Similar tickers do not establish identity. Verify the network and official contract address. A wrapped representation adds another mechanism between the asset you hold and the asset it is intended to track.

Ask where value reaches the holder

A useful application does not automatically make its token valuable. Determine whether fees accrue to validators, a company, a treasury or token holders. Governance rights are different from enforceable cash flow rights. Write the mechanism in one sentence. If you cannot explain how adoption could affect supply or demand for the token, the investment thesis is incomplete.

Understand stablecoin risk

Stablecoins aim to track a reference such as a currency. Designs can use reserves, crypto collateral or other mechanisms. Examine redemption conditions, eligible redeemers, collateral quality and the process during stress. A quoted peg is an objective rather than a guarantee. Holding a dollar referenced token is not necessarily equivalent to an insured bank deposit.

Calculate a depeg scenario

Suppose you hold 2,000 units of a fictional dollar stablecoin. At $0.97 each, their market value is $1,940, a $60 decline before conversion costs. If you also own a token quoted in that stablecoin, translate both prices before judging your dollar return. A stable looking trading pair can hide a movement in its denominator. Separate token price risk from reserve, custody and redemption risks.

Try it yourself

A token remains at 10 stablecoin units while the stablecoin falls from $1 to $0.95. What happens to the token’s dollar value?

Show the worked answer

It falls from $10 to $9.50, a 5% decline, even though the quoted token pair is unchanged.

Further reading

Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.

Continue learning