Understanding Non-Native Tokens

Non-native tokens are tokens whose blockchains are derivatives of another blockchain with a native token.

These tokens rely on the native token’s blockchain standards to thrive. The most prominent example of this is the Ethereum blockchain, which houses several decentralized applications with their own tokens. In addition to being a derivative, non-natives tokens are developed for specific uses, either as the only source of payment within their ecosystem, particularly with dApps, or for governing a right on decentralized autonomous organization (DAO) projects.

Examples of Non-Native Tokens 

Non-native tokens come in different categories, such as governance tokens, wrapped tokens, stablecoins, and oracle tokens. Some examples of non-native tokens include the Chainlink platform’s LINK; WBTC, a tokenized wrapped bitcoin that runs on the Ethereum blockchain; USD Coin (USDC), a digital currency that is fully backed by U.S. dollar assets; AAVE, the native token of the decentralized Aave platform; and DAO Maker’s governance token, MKR.

LINK, the token of a decentralized blockchain oracle network built on Ethereum called Chainlink, is a classic example of a non-native token and is a primary source of payment. Chainlink is middleware connecting blockchain smart contracts with real-world data, and LINK is used to pay its operators responsible for retrieving off-chain data and performing computations. LINK allows external data to communicate with the blockchain.

For example, when a person uses crypto to bet on the outcome of a football match, the wager is stored on a smart contract. To determine whether the person won or lost, the blockchain needs a reliable source of information; oracle tokens such as Chainlink’s are practical for this use. Besides LINK, other non-native tokens in this category are Band Protocol (BAND) and NEST protocol (NEST). 

Uses of non-native tokens and benefits they provide are seen in DeFi and DAO projects, where they provide reduced transaction fees and act as governance tokens.

With a decentralized money market such as Aave, where cryptocurrency can be lent and borrowed, users get a reduced transaction fee when carrying out an activity on the DeFi platform, making it reliable to them.

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 This added benefit lets the holder of AAVE govern through voting how the protocol works, changes that should be implemented, and more.

6 other categories of non-native tokens include storage tokens, privacy coins, and sports tokens.