Smart tokens are regular tokens that can be exchanged for value alongside the relevant information required to execute its transaction. Smart tokens operate like any token on the Ethereum blockchain; however, they carry an added functionality leveraging ERC-20 smart contracts.
This functionality enables in-built programmability, allowing smart contracts to be traded without the need for a cryptocurrency exchange.
Smart Tokens and how they operate
The earliest history for smart tokens was in 2017, as they are relatively new, and their use cases are still largely undefined. The Bancor decentralized protocol developed its smart tokens that leverage smart contracts with a simple use case – direct on-chain token interaction, i.e. the buying and selling of the tokens is governed by its innate programmed smart contract.
Smart tokens simply aim to offer an alternative to trading on exchanges in a bid to combat a concept known as liquidity risk.
Smart Tokens aim to be a new standard for cryptocurrencies that are intrinsically exchangeable directly through their smart contracts, which utilizes an innovative reserve method to enable automatic price discovery and continuous liquidity for tokens without needing to match two parties in an exchange.
In summary, smart tokens leverage smart contracts containing all the information needed to validate a transaction.