A. Glossary of Terms
This glossary provides definitions for technical terms, financial concepts, and blockchain terminology used throughout this paper. Terms are organized thematically for easy reference.
Core Token Concepts
Token: A digital unit of value or rights recorded on a blockchain; unlike native cryptocurrencies, tokens are created by smart contracts on top of an existing blockchain
Cryptocurrency: The native digital asset of a blockchain network, used to pay for transactions and secure the network Examples: BTC on Bitcoin, ETH on Ethereum
Fungibility: The property of being interchangeable. Every unit of a fungible asset is identical in value and function to every other unit Example: One dollar bill is equivalent to any other dollar bill
Non-fungibility: The property of being unique and not interchangeable with other tokens; each token has distinct attributes that give it individual value
Token Standard: A technical specification defining how tokens must behave on a blockchain, including what functions they expose, how they transfer, and how other contracts interact with them Example: ERC-20 defines the rules all fungible tokens on Ethereum must follow
Token Economics (Tokenomics): The economic design governing a token, including its total supply, distribution schedule, issuance rate, and the incentives built into its ecosystem
Circulating Supply: The number of tokens actively available and trading in the open market at a given time
Total Supply: All tokens that currently exist, including those locked, staked, or held in reserve, but not yet burned
Max Supply: The hard upper limit on how many tokens can ever be created; some tokens have no cap
Market Cap: Total market value of a token; calculated as circulating supply × current price
Mint: The act of creating new tokens and adding them to circulation
Burn: Permanently destroying tokens by sending them to an unspendable address, reducing total supply
Blockchain Infrastructure
Blockchain: A distributed digital ledger that records all transactions across a network of computers; records are immutable and publicly verifiable
Smart Contract: Self-executing code deployed on a blockchain that automatically enforces rules and handles token logic. It covers transfers, approvals, minting, and burning, with no intermediary involved
Gas Fees: Transaction costs paid to validators to process operations on a blockchain; vary by network congestion and computational complexity
Layer 1 (L1): The base blockchain protocol where transactions are settled and security is enforced Examples: Ethereum, Solana, Bitcoin
Layer 2 (L2): Scaling solutions built on top of L1 blockchains that process transactions faster and cheaper, then settle batches back to L1 Examples: Arbitrum, Optimism, Polygon
On-chain: Any activity recorded directly on the blockchain and permanently visible to all participants
Off-chain: Data or activity that exists outside the blockchain; often used for NFT metadata or governance discussions before a formal vote
Block Confirmation: The process by which a transaction is validated and permanently added to the blockchain; more confirmations means higher certainty
Interoperability: The ability of different blockchain networks to communicate and transfer assets or data between each other
Bridge: A protocol that locks tokens on one blockchain and issues equivalent tokens on another, enabling cross-chain movement Example: Moving USDC from Ethereum to Solana via a bridge
ABI (Application Binary Interface): The technical interface that defines how external applications and contracts can interact with a smart contract's functions
Fungible Token Standards
ERC-20: The dominant Ethereum standard for fungible tokens; defines a common set of functions (transfer, approve, allowance) that all compliant tokens share, enabling wallets and exchanges to support any ERC-20 without custom integration
SPL Token: Solana's native fungible token standard; all tokens on Solana, including USDC, stablecoins, and governance tokens, follow this specification
BEP-20: Binance Smart Chain's fungible token standard, closely modeled on ERC-20; tokens like BNB's wrapped equivalents follow this format
TRC-20: TRON's fungible token standard, also ERC-20 compatible; hosts a large share of USDT in circulation
Token Contract Address: The unique on-chain identifier for a specific token; used to distinguish between tokens and prevent counterfeits Example: USDC on Ethereum has a specific contract address different from any other token
Allowance: The ERC-20 mechanism by which a token holder authorizes a contract or address to spend up to a set amount of their tokens
Non-Fungible Token (NFT) Standards
NFT (Non-Fungible Token): A unique blockchain token where each unit has a distinct identity and cannot be substituted for another, even within the same collection
ERC-721: The original Ethereum NFT standard; each token has a unique ID and is stored in its own contract slot, making every item individually ownable and transferable
ERC-1155: A multi-token standard that allows a single smart contract to manage both fungible and non-fungible tokens simultaneously; more gas-efficient for large collections or games Example: A game item contract with 1,000 identical swords (fungible) and a unique legendary weapon (non-fungible) in the same contract
Metadata: Off-chain data associated with an NFT, typically the image, name, description, and attributes, stored on IPFS or a server and referenced by the token
Token URI: The on-chain pointer (a URL or IPFS hash) that directs to an NFT's metadata file
Royalties: A percentage of each secondary sale automatically paid to the original creator; enforced on-chain via standards like EIP-2981
Metaplex: The primary NFT standard and tooling ecosystem on Solana; defines how Solana NFTs are created, stored, and traded
Ordinals: A protocol that assigns a unique serial number to individual satoshis (the smallest unit of Bitcoin) and allows data to be inscribed directly onto them, creating Bitcoin-native NFTs without a separate token layer
Inscription: The content, whether image, text, or code, embedded directly into a Bitcoin satoshi via the Ordinals protocol
Governance Tokens & DAOs
Governance Token: A token that grants holders voting rights over decisions in a protocol, including parameter changes, treasury spending, upgrades, or new features
DAO (Decentralized Autonomous Organization): An organization governed by token holders through on-chain voting, with rules enforced by smart contracts rather than legal entities or executives
On-chain Governance: A voting system where proposals and votes are executed directly by smart contracts; binding and transparent but requires gas to participate
Off-chain Governance: Voting that happens outside the blockchain (via platforms like Snapshot) and relies on social consensus for implementation; free to participate but requires trust in the team to honor results
Proposal: A formal motion submitted to a DAO for community vote, typically including a description, rationale, and the exact code to be executed if passed
Quorum: The minimum percentage of eligible votes required for a governance decision to be valid; prevents small groups from passing changes uncontested
Vote Delegation: The ability to assign your voting power to another address without transferring your tokens; allows passive holders to remain represented
Time Lock: A mandatory delay between a governance vote passing and the change being executed on-chain, giving users time to exit if they disagree with the outcome
Snapshot: An off-chain governance platform widely used by DAOs; also refers to recording token holder balances at a specific block number to determine voting eligibility
Utility Tokens
Utility Token: A token that grants access to a specific product, service, or feature within a blockchain ecosystem. It is not intended as an investment but as functional currency within a platform
Platform Token: A token native to a specific blockchain ecosystem used to pay fees, access services, or incentivize participation Examples: BNB (Binance), FIL (Filecoin), MANA (Decentraland)
Burn Mechanism: A deflationary design where a portion of transaction fees or token usage is permanently destroyed, reducing supply over time Example: Ethereum burns a base fee on every transaction since EIP-1559
Staking: Locking tokens in a protocol to earn rewards, gain access to features, or contribute to network security; tokens remain owned but temporarily illiquid
Vesting: A time-locked release schedule for tokens allocated to founders, investors, or team members; prevents immediate selling and aligns long-term incentives Example: A 4-year vesting schedule with a 1-year cliff means no tokens unlock for the first year, then they release gradually over 3 more years
Security Tokens
Security Token: A token that represents ownership of a real-world asset, such as equity, debt, real estate, or revenue rights, and is subject to securities regulation in the issuing jurisdiction
Howey Test: The US Supreme Court framework for determining whether an asset qualifies as a security; an asset is a security if it involves an investment of money in a common enterprise with the expectation of profit from others' efforts
STO (Security Token Offering): A regulated fundraise where security tokens are sold to investors under applicable securities law, as opposed to an unregulated ICO
RWA (Real-World Asset): A physical or traditional financial asset, such as property, bonds, commodities, or invoices, that has been tokenized and represented on a blockchain
Permissioned Transfer: A token design where transfers can only occur between addresses that have passed compliance checks (KYC/AML); required for most security tokens
KYC (Know Your Customer): Identity verification process required by financial regulations before allowing users to access certain services or hold compliant tokens
AML (Anti-Money Laundering): Regulatory procedures designed to detect and prevent the use of financial systems for illegal activity
Regulation D: A US SEC exemption allowing security token offerings to accredited investors without full public registration
Regulation S: A US SEC exemption allowing token sales to non-US persons outside the United States, exempt from domestic registration requirements
Stablecoins
Stablecoin: A token designed to maintain a stable value relative to a reference asset, most commonly the US dollar; a distinct token category covered in depth in Protokol's dedicated stablecoin paper
Fiat-Collateralized Stablecoin: Backed 1:1 by cash or government securities held in reserve by a regulated issuer Examples: USDT (Tether), USDC (Circle)
Crypto-Collateralized Stablecoin: Backed by on-chain cryptocurrency assets, typically over-collateralized to absorb price volatility Example: DAI backed by ETH and other crypto assets via MakerDAO
Algorithmic Stablecoin: Uses smart contract mechanisms and economic incentives to manage supply and maintain price stability without full collateral backing; carries higher risk of collapse
Peg: The fixed exchange rate a stablecoin targets, typically 1:1 with USD
De-peg: When a stablecoin loses its target value and trades meaningfully above or below its intended price
Over-collateralization: Holding reserves worth more than the stablecoins issued as a buffer against asset price drops
Regulatory Concepts
Security vs. Commodity vs. Utility: The core classification debate in token regulation; how a token is classified determines which agency has jurisdiction and what rules apply, whether that's securities law (SEC), commodities law (CFTC), or lighter-touch consumer protection
MiCA (Markets in Crypto-Assets): The EU's comprehensive regulatory framework for crypto-assets, including token issuance, trading, and stablecoin rules; came into full effect in 2024
SEC (Securities and Exchange Commission): The US federal agency that regulates securities markets; has claimed jurisdiction over many tokens it considers investment contracts
CFTC (Commodity Futures Trading Commission): The US federal agency regulating commodity derivatives; considers Bitcoin and some other tokens commodities under its jurisdiction
Regulatory Arbitrage: The practice of structuring a project or issuing tokens in a jurisdiction with more favorable or less developed regulations to reduce compliance burden
Sandbox: A formal regulatory program allowing companies to test new financial products with real users under a temporary exemption from certain rules Examples: UK FCA sandbox, MAS (Singapore) sandbox
VASP (Virtual Asset Service Provider): A global regulatory classification under FATF guidelines covering exchanges, wallet providers, and other entities handling crypto assets on behalf of users