What Is a Smart Token?
A smart token is a type of token on a blockchain network that not only represents value but also contains embedded programming and rules to enable automated transactions.
Unlike regular tokens that transmit value, smart tokens have built-in programmability that allows them to manipulate and control the value they represent.
Smart tokens operate on three layers:
- The asset or value source, such as a wallet, holds the underlying value represented by the token.
- An accompanying rules determined by the token issuer defines the conditions for accessing and using the asset. These rules can specify who has access to the asset, when, and under what conditions.
- A state that tracks the token’s value based on the predefined rules. This state keeps a record of transactions and adjusts the token balance accordingly.
Smart tokens can provide enhanced functionalities and information by incorporating smart contracts, such as counterpart identities and invoicing data.
This programmability enables automated and secure transactions, as the rules and conditions are encoded within the token.
Revolutionizing Token Interactions
The concept of smart tokens gained popularity with the launch of Bancor’s decentralized trading protocol.
Bancor introduced its smart tokens in 2017, allowing direct convertibility within the tokens using smart contracts.
This eliminated the need for traditional exchanges and enabled direct on-chain token interactions.
Smart tokens offer greater flexibility and automation in tokenized ecosystems, enabling seamless and efficient transactions without relying on intermediaries.