What is a Native Token: Most Reliable Asset on Every Blockchain?

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By Kate
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 Native token

Native tokens, also known as base tokens, are crypto assets inherent to a specific blockchain.

They serve as the key currency for rewarding miners and network validators. Being fungible tokens, they act as the key means of payment within the blockchain’s ecosystem.

At this, native tokens are crucial for any blockchain. Read this article to find out how they work and what makes them the most reliable assets in any blockchain-based system.

Key Takeaways

  • Native tokens are the tokens inherent to specific blockchains.
  • Native tokens serve to incentivize network validators, cover transaction fees, and perform network governance.
  • Native tokens come with the highest liquidity. At this, they are also the best option for backing stablecoins.
  • Examples of native tokens include PLS (PulseChain), ETH (Ethereum), FTM (Fantom), and AVA (Avalanche)
  • Non-native tokens represent derivatives of native tokens. They only fuel specific dApps or blockchains that are built on other standards such as ERC20.
  • Any blockchain can feature only one native token.

What is a Native Token?

Native tokens represent the most fundamental tokens of blockchain ecosystems. At this, users can exchange value on a peer-to-peer basis with their help.

Each independent blockchain features its own native token with its balances being stored right on the L1 (layer-1).

Ethereum with its native token ETH is, perhaps, one of the most prominent examples. 

As ethers represent the value of the network, users may rely on these native tokens to make peer-to-peer transactions. To pay gas fees, they convert ETH into gas. Node validators, in turn, get ETH as a reward for their work.

The Use Cases of a Native Token

Following the native token definition, it’s worth giving more details about its primary use cases. At this, native tokens can help to perform the following key tasks.

  • Incentive mechanism for validators. Network validators get rewards for their work in the form of native tokens. Thus, these tokens are essential to the stability and security of any blockchain.
  • Transaction fees. In order to send funds from one wallet to another, users have to pay network fees. For that, they use native tokens of the blockchain where they operate.
  • Network governance. Blockchains running on the proof-of-stake consensus mechanism, require users to stake native tokens to perform network governance. At this, it is possible to vote on any proposed changes proportionate to the amount at stake. Thus, the more governance tokens one has at stake, the higher his or her influence.

All these aspects make native tokens the most liquid and, therefore, the most reliable and stable assets within any given blockchain infrastructure. 

This leads to another important use case.

With all the features mentioned above, native tokens represent the best solution to back algorithmic stablecoins

In the case of PulseChain, its native token PLS is the key asset to maintain another digital asset USDL stable. Regardless of the market conditions, there will always be a sufficient amount of the native token to guarantee a stable price of USDL.

Native Token List (Examples)

Below, we have listed some of the popular blockchains together with their native tokens. 

While the roles that these tokens play are more or less the same, each of them comes with its own specific features worth covering.

PulseChain

PulseChain is a full-system state copy of Ethereum 2.0. The native token of PulseChain is PLS.

You can think of PLS is to PulseChain as ETH is to Ethereum. They are both the gas tokens used for the blockchain. However, PLS has a much greater supply which has helped alleviate unit bias. 

PulseChain has other native tokens on it as well. Since USDL is created when PLS is locked in a vault, and it does not rely on any activities off-chain, it is also a native token. 

Ethereum Native Token

Ethereum blockchain features ether (ETH) as its native token. Users can make peer-to-peer payments within the network and also cover gas fees with its help.

Thanks to smart contracts, Ethereum has given an impulse to the development of the whole blockchain industry in general and decentralized applications in particular. 

With many DeFi applications being fuelled by the Ethereum token, the importance of ETH is difficult to underestimate.

Fantom Native Token

As an Ethereum rival, Fantom has developed its own blockchain that features high transaction speed at a low cost.

Its native token FTM helps to secure the network through staking. Also, it can be used for payments, fees, and governance.

Avalanche Native Token

Avalanche features a unique architecture powered by the subnets. Each of these subnets comes with independent native tokens and a fee structure.

Also, it comes with a unified native token AVAX. Aside from network payments, it helps to perform atomic swaps and covers transaction fees.

Native vs Non-native Tokens 

As one you guess, non-native tokens exist as well. These types of tokens represent derivatives of native tokens. 

At this, non-native tokens depend on the standards of native tokens such as ERC20 or TRC20 to function properly. They are usually deployed on specific smart contracts with their balances residing within these contracts.

At the same time, non-native tokens can also exist outside of a single blockchain. For example, USD Coin (USDC) coin is available not only on Ethereum but also on other blockchains such as Solana and Stellar.

The role that non-native tokens play is incomparably smaller, though. Usually, they fuel separate networks that are based on Ethereum or other standards. Also, they may be used within specific dApps or services.

Examples of Non-native Tokens

Wrapped versions of digital assets such as wBTC, wETH, or wSOL are, perhaps, the best examples of non-native tokens.

These tokens can be bridged onto other blockchains, but they cannot be issued on these blockchains straight away. For that, only specific smart contracts can be used.

Fiat-backed stablecoins represent another example of non-native tokens. At this, they rely on fiat or other digital assets as collateral that helps them to maintain a stable rate.

Can a Blockchain Have More Than One Native Token?

From a technical perspective, a blockchain can have only one native token. There are situations when a network may feature two different tokens. Yet, only one of them will be native.

The most popular scenario implies the following.

One token of a given blockchain acts as a stablecoin, and the other one is used as collateral to maintain the first one stable.

With PulseChain, these are USDL and PLS correspondingly.

USDL is directly redeemable and fully backed by PLS. At this, PLS is the key native token of the network. At the same time, USDL can be considered a native stablecoin of the same network.

Why Native Tokens should be used as Collateral

The Liquid Loans Protocol uses PLS as collateral for a reason.

This is the same reason why the first protocol, Liquity, uses ETH as collateral.

More often than not, the native token of the blockchain typically has the most liquidity and the lowest volatility. 

Lower volatility makes the probability of mass liquidations lower. 

Higher liquidity makes the crypto redemption mechanism much more robust. 

Bottom Line

Native tokens play an important role in any blockchain ecosystem. Any blockchain with unique architecture issues its own native tokens that fuel its infrastructure.

Native tokens serve as incentives for validators. Users can exchange value with their help and cover network fees. Also, these tokens may serve for governance purposes. All these features make them the most reliable assets in any ecosystem.

Non-native tokens are of lesser importance as they only depend on the native token standards and usually fuel separate dApps. At the same time, their architecture makes it possible to launch interchangeable assets on different blockchains.

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Kate

Kate is a blockchain specialist, enthusiast, and adopter, who loves writing about complex technologies and explaining them in simple words. Kate features regularly for Liquid Loans, plus Cointelegraph, Nomics, Cryptopay, ByBit and more.

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