Types of Cryptocurrencies

There are many types of cryptocurrencies.

Blockchain Cryptos

These are the most well-known, as Bitcoin and Ethereum are blockchain cryptos. They are tokens used to pay for transaction fees on the blockchain (such as creating NFTs, creating tokens, transferring cryptocurrencies, etc.).

This also includes Solana and Polkadot, which are also blockchain cryptos.

So far, we have talked about Layer 1 blockchains. Other blockchains have been built on these Layer 1 blockchains, often to reduce fees, such as Optimism and Arbitrum. They may have their own tokens, such as OPT and ARB.

To conclude on blockchain cryptos, there is Polygon, which is a side-chain, and its token is MATIC.

DEFI Cryptos

DEFI protocols, decentralized finance, allow for token exchanges and lending, for example.

Popular DEFI cryptocurrencies include UNI (Uniswap), AAVE, CRV (Curve), and many others.

Meme Project Cryptos

These are projects based on buzz and whose utility is not obvious. Nevertheless, some cryptocurrencies of this type have very high valuations, such as DOGE.

Metaverse Cryptos

Mainly related to Sandbox (SAND) and Decentraland (MANA), they are the currency used in these virtual worlds.

Gaming Cryptos

These are cryptocurrencies used in games, such as AXS (Axie Infinity) or Beam.

Stablecoins

These are cryptocurrencies designed to replicate the value of a legal tender currency. The most important ones replicate the value of the dollar (USDT and USDC in particular). Others replicate the value of other currencies like the EURO (AgEUR, EUROC), and other fiat currencies.

There are centralized stablecoins where the issuer holds the corresponding fiat value of the issued tokens.

And there are decentralized stablecoins that can be collateralized with other stablecoins or cryptocurrencies (e.g., DAI or crvUSD).

Stablecoins allow for securing profits without exiting the crypto market.

Liquid Staking Tokens

Some protocols allow for staking tokens and earning a yield, such as ETH. Protocols help facilitate the process, where investors entrust their tokens to them, stake them on their behalf, and receive a token corresponding to the staking in return. The largest staking protocol is LIDO, which issues, for example, stETH for an entrusted ETH.

Which types of protocols to invest in? It is certainly difficult, if not impossible, to choose. Our recommendation is to diversify.