A token glossary

In the token ecosystem, pools or liquidity pools typically refers to a “pool” of capital, usually in the form of a specific token or set of tokens. Pools play a crucial role in decentralised finance applications such as the lending protocol Aave and the decentralised exchange Uniswap, allowing users to add their tokens to a pool to make a swap, earn yield, or take out a loan.

While the decentralised finance ecosystem works well, it relies on price feeds from the real world. Price feeds are commonly used to provide data on currencies like the US dollar, which allows dollar-based tokens known as stablecoins to work. Price feeds are usually provided by oracles like Chainlink, and play a vital role in the ecosystem as they are crucial to enabling use cases like decentralised finance and NFTs. 

As blockchain networks are decentralised by design, they need a way for network participants to come to an agreement on the validity of each transaction. The most popular method for achieving this is Proof-of-Stake, a process where network validators “stake” their tokens to verify transactions and earn a reward in return for their contributions. Proof-of-Stake consumes less energy than the Proof-of-Work consensus mechanism and is widely adopted across most “Layer 1” blockchains. 

The Bitcoin blockchain pioneered a process known as Proof-of-Work to validate transactions. Bitcoin’s Proof-of-Work system relies on miners, who use powerful hardware to verify transactions and secure the network. In return, they receive a reward in the form of BTC. While Proof-of-Work has secured Bitcoin for its entire lifetime, it has occasionally been criticised due to its high energy consumption. 

In the token ecosystem, protocols are sets of rules that allow for the storage and exchange of value through cryptocurrency networks. Bitcoin and Ethereum are examples of blockchain protocols, and Ethereum also hosts its own array of decentralised protocols that run on top of the network. Protocols are the essence of blockchain, embedded in code and adopted by millions of network participants worldwide. 

While blockchains record transaction data on a public ledger, it can be difficult to find information without a lot of searching. Projects like The Graph are working to solve this issue by acting as a query layer for finding data across different blockchains. Many key token projects need data from other projects to function, which has made The Graph an ecosystem staple. 

The token ecosystem is its own limitless universe that acts independently from the traditional world. However, certain projects rely on data from the “real world” such as the prices of assets like gold or the dollar. So when token users refer to the “real world,” they’re usually talking about data and goods that exist outside of the token ecosystem itself.

Ethereum is working to solve challenges related to onboarding users by focusing on building technologies to help the network scale for mass adoption. Arguably the most important technology fulfilling Ethereum’s scaling ambitions is Layer 2 Rollups, which are used to bundle transactions and move data off the base chain onto a new blockchain. This reduces congestion and allows for higher speeds and lower transaction costs. Rollups take two forms: Optimistic and Zero-Knowledge, with key projects including Optimism and StarkNet. 

In the token ecosystem, scaling refers to the process of supporting network growth, usually through technological innovations and infrastructure like Layer 2 solutions. Blockchains need to achieve scalability in order to support new adopters and usher in mass token adoption. While scaling is still one of the biggest challenges for networks like Ethereum, it’s hoped that new developments will prepare the ecosystem for growth over the years ahead.