How to find the Best Token based on its Utility?
Tokens form the backbone of the cryptocurrency market. People use tokens to perform transactions, buy products or services, and even trade. And that’s why you will see a lot of tokens getting highly popular. But not all that shines is gold! Some tokens are a flop show, too. In fact, not some, but a lot of tokens are a flop show.
So, as an investor or a trader, it’s very important for you to identify tokens that have some actual value. Now, the value of the best token depends on its utility. And how do you evaluate a token’s utility? Well, that’s exactly what we are going to discuss in this blog.
So let’s get started.
1: Start with the Token’s Purpose
A token’s purpose defines its reason for existence. There are some tokens that power entire blockchain networks. If you find such a token, it could be the best token for long-term investment, according to certain experts. The best example is ETH or Ether. This token powers the Ethereum blockchain. So it’s like a double-edged sword. While ETH might be quite valuable as it powers an entire blockchain, it relies on the Ethereum network for its valuation. Without Ether, Ethereum is unable to function.
Some tokens act as governance tools. These tokens help holders to vote on certain decisions that might impact the future of the network itself. Uniswap’s UNI is a perfect example of these tokens. If you are holding UNI, you get the right to vote on every update from the token. Such features give the respective tokens a purpose and a role.
Then come access tokens. These tokens let you unlock certain services or platforms. They give you access to something, hence the name. For example, you get access to some dApps using certain tokens. So, you can think of these tokens as the keys to the doorways for a particular ecosystem. But the drawback is, they do not have any function once you take them out of the ecosystem. So, can such a token be the best token? The chances are comparatively low.
When you are evaluating a token, always ask why it exists. If you cannot identify its purpose, the token likely has little real-world use.
2: Examine the Ecosystem
The ecosystem around a token determines its overall demand. A strong ecosystem attracts developers, users, and projects. So, it’s a great factor to identify the best token for trading and investment. For example, Ethereum’s ecosystem supports thousands of decentralized applications. These apps rely on Ether for transactions and operations. This makes Ether indispensable.
Smaller ecosystems may have fewer use cases. If a blockchain hosts only a handful of projects, its token may struggle to gain traction. So, if the token’s ecosystem is bigger, more diverse, and has more projects, it might have better chances to grow in value. So, it could be the best token for the future if other conditions are met.
On top of that, take a look at which industries these tokens support. If it supports wider industries, then obviously, it will have more utility and, hence, more value. Let’s say ETH. This token has exceptional usability, and hence, certain investors consider it the best token. The reason is, it powers decentralized finance, gaming, and NFTs. Similarly, if the tokens are linked to niche ecosystems, they might have limited applications and demand.
3: Focus on Real-World Use Cases
The best token is the one that has maximum real-world usage. Bitcoin is a perfect example. It serves as both a digital currency and a store of value. Businesses accept Bitcoin for payments, and investors use it to hedge against inflation. These clear use cases drive its demand and adoption.
Decentralized finance (DeFi) tokens also have strong utility. For example, Aave’s AAVE token powers lending and borrowing on its platform. Users need AAVE to interact with the protocol. Similarly, Chainlink’s LINK token secures data for smart contracts. This makes AAVE the best token for traders and investors, according to some crypto specialists.
Speculative tokens, on the other hand, often lack real-world use. If a token’s only appeal is the chance of a price increase, its utility is weak. So, if you are searching for the best token for investment, that might not be the one. But there is a catch! If you are looking for the best token for trading, such speculative tokens might offer a good swing trade. The only problem? These tokens are hyper-risky, and the risk of losing the entire valuation is high. So, a lot of experts do not consider such a token to be the best token.
4: Evaluate Tokenomics
Tokenomics deals with the economic design of a token. This includes supply, distribution, and inflation. If a token’s tokenomics is well-designed, it will have better stability.
Start by looking at the token’s supply. For example, Bitcoin has a fixed supply of 21 million coins. This limited supply cap automatically makes it valuable over time. On the contrary, tokens like Dogecoin have no market cap. Their supply is limited, and they are available in the market in abundance. Such unlimited numbers might lead to inflation and lower demand.
Sometimes, inflationary or deflationary mechanisms also matter. Some tokens burn a portion of their supply. The idea is to reduce the circulation and, in turn, boost their value. Ethereum regularly does this. But the minting of new coins increases the supply and hence dilutes its valuation.
Distribution plays a key role, too. If a small group holds most of a token’s supply, it risks centralization. Fairly distributed tokens often inspire more confidence and attract broader adoption.
5: Analyze Incentives
This is a major factor that investors and traders ignore. A lot of projects reward their users just because they are participating in their network. Staking is the best example of this. When you stake coins like Cardano’s ADA, you lock some of your portion to safeguard the network. In turn, you receive rewards from the network.
Sometimes, networks offer liquid incentives, too. Decentralized finance platforms encourage users to provide liquidity by offering token rewards. Such incentives push the demands up and attract more users to perform some activity on the network.
Similarly, some tokens offer exclusive benefits to the users. For example, some give discounts, premium access, or voting rights (as we discussed earlier.) People love such incentives, and hence, they adopt the token more. Result? A sustained increase in adoption and demand.
6: Focus on Scalability
A token’s utility depends on its network’s ability to scale. Scalability ensures the network can handle more users and transactions as demand grows. Solana is a great example of a scalable network. Such a scalability of SOL makes it the best token to invest in as per experts. It processes thousands of transactions per second with minimal fees. This efficiency makes Solana’s token, SOL, a favorite among developers and users.
In contrast, networks with slow speeds or high fees struggle to maintain utility. Ethereum faced these issues before its upgrades. Scalability improvements, like Ethereum 2.0, solved many of these problems. Now, Ethereum supports faster and cheaper transactions, boosting Ether’s utility.
Always check whether the network can grow without losing functionality. If a blockchain cannot scale, its token may lose relevance over time. In short, scalability is a critical factor to find out the best token for investment.
7: Look at Community Engagement
Community support is one more factor in identifying the best token for the long and short term. An active and passionate community promotes adoption and growth. What do you think makes Dogecoin the best token, as per some investors? Simple tokens like Dogecoin thrive because of their loyal fan base. Community-driven efforts keep the token relevant and visible.
Developer activity also matters. Regular updates and innovations show that a project is evolving. Developers who actively contribute to a blockchain improve its chances of success. Without developer and community support, a token’s utility may stagnate and so are the chances of it to become the best token.
8: Examine Governance Features
Some tokens allow holders to participate in governance. Governance tokens give users a voice in the project’s future. This feature adds utility by involving the community in decision-making.
For example, holding a governance token like UNI lets users vote on updates to the Uniswap protocol. Governance tokens often attract users who want to influence the direction of a project. The more active the governance, the more utility the token provides.
9: Check for Regulatory Compliance
Regulatory compliance impacts a token’s accessibility. Tokens that follow legal guidelines can operate in more markets. Compliance with anti-money laundering (AML) and know-your-customer (KYC) rules builds trust. Institutional investors are more likely to adopt compliant tokens.
Non-compliant tokens face risks, including legal action or delisting from exchanges. A token with clear legal status is safer and more attractive to both retail and institutional users. So, if a token meets these regulatory guidelines, it could be the best token to work with.
10: Analyze Adoption Trends
Adoption trends provide a snapshot of a token’s relevance. A growing user base signals increasing utility. Bitcoin, for instance, has seen widespread adoption for payments and investments. This steady growth supports its long-term value.
Tokens integrated into multiple platforms also show strong utility. High trading volumes and consistent activity indicate ongoing interest. If a token’s adoption trends decline, its utility may weaken over time.
Wrapping Up
In short, if you are evaluating a token’s utility, the factors that we mentioned above play quite an important role. You’ll have to take a look at real-world use cases, purpose, scalability, and more.
When you put a token under all these lenses, you’ll be able to filter out a lot of useless tokens. Finally, you will end up with a list of a few tokens that might have great potential in the future.
Look, there is no one definite way to identify the best token that will deliver stellar returns. There are a lot of moving factors that impact the future course of the token. But when you take a systematic approach, you will surely find some useful ones.
Usability might not be the only key to identifying a potential wealth builder. But it surely is an important factor in finding the best token. We hope this guide will help you find your next big investment option.
Remember, invest only with a reliable and safe crypto platform like Visiion.io. When you are buying a token or a coin, you are investing your hard-earned money in it. So make sure you choose your investment and trading partner wisely.
For any further details and information, feel free to explore our website. Till then, happy investment and trading!
