What is Token Holder? Token Holder Role and Rights (2024)

Who is the token holder in the world of cryptocurrencies and Web3? Explore the roles, benefits, risks, and latest trends for token holders in 2024 to make smart investment decisions.

In the rapidly evolving world of cryptocurrencies and blockchain, the term “token holder” is becoming increasingly popular. But what is a token holder, what role do they play in this potential Web3 ecosystem? And most importantly, what rights and responsibilities do they have? This article will delve into the Token Holder concept and give you the most complete and up-to-date overview of their role, benefits, risks and key trends in 2024.

What is a Token Holder? Definition and Classification

Definition of Token Holder

Basically, a token holder is an individual, organization or even a smart contract that owns one or more tokens of a specific blockchain project. Tokens here can be cryptocurrencies, utility tokens, governance tokens, security tokens, or other types of tokens.

Classification of Token Holders

Token holders can be grouped based on several different characteristics, such as the amount of tokens they own, the purpose of their investment, and the extent of their involvement with the project. A few common types are as follows:

The role of the token holder in the Web ecosystem Web3

1. Maintaining decentralization

A token holder has one of the crucial jobs to maintain the decentralization of a blockchain network. A true decentralized governance model does not concentrate power in the hands of a few people or organizations, instead it is distributed to a large) number of users who hold the tokens. It makes the network more secure and harder to manipulate.

One example of this is the first and largest cryptocurrency Bitcoin, which has approximately 1.28 million active wallet addresses (datanoma, 2024 data; Glassnode, 2024). The total supply of 21 million BTC is distributed in such a way that no organization holds over 5% of the total Bitcoin supply, which keeps the network decentralized.

An example in this genre would be that of MakerDAO, one of the top DeFi (decetralized finance) projects, with more than 120,000 MKR token holders. These members vote on key decisions, including the interest rate of the stable DAI currency and what assets can be used as collateral.

2. Increse the price of the token.

It also incentivizes token holders to promote the token value. HODLers help to reduce the circulating supply in the market by holding tokens, thus creating scarcity and possibly driving up the price.

As an example, almost 58% of ETH (according to Glassnode) is stored in wallets longer than 2 years (2024 Data). Such confidence in the long-term prospects of Ethereum lends to price stability.

Furthermore, a lot of projects also incentivize their users to “stake” their tokens. In return, you receive rewards for blocking tokens for a certain period of time to support network operations.

For instance, about 25% of the total BNB supply is being staked earning ~6% APY (Annual Yield) (Source: Binance, 2024 data).

3. Participate in the governance of the DAO (Decentralized Autonomous Organization)

In projects using the DAO model, token holders have the right to participate in the governance of the project. They can vote on proposals for protocol changes, funding allocations and other important decisions. Voting power is usually proportional to the number of tokens a person holds.

For example:

• ApeCoin DAO, a decentralized autonomous organization created for the Bored Ape Yacht Club (BAYC) ecosystem, has voted to distribute $100 million to metaverse projects.
• Uniswap, the leading decentralized exchange, has voted to integrate Polygon zkEVM, a layer 2 scaling solution for Ethereum. More than 92% of UNI token holders voted in favor of the proposal.

Token Holder benefits in 2024

1. Financial benefit

A good number of people who become token holders do so primarily for profit motives. Holding tokens can generate profit in multiple ways:

• Staking rewards: as mentioned in the previous point, staking tokens can yield high revenues. Depending on the project and the sort of token, average staking interest rates are between 3% and 12%. For instance, Ethereum has an interest rate of about 4.2%, while Solana has an interest rate of about 7.5%.
• Airdrop: some projects utilize free tokens to users as a part of the marketing campaign — this method is attractive in rewarding early supporters. E.g. In 2024, there was a huge airdrop of StarkNet (STRK) tokens to 1.8M addresses with an average market value of approximately $2000 per wallet.
• Distributions: Certain Security Tokens can, by nature, promise and maintain ownership dividends to their holders. One such example is RealT, a blockchain-based real estate tokenization platform that enables users to buy tokens indicating fractional ownership of an estate and receive dividends from rent payments.
• Token prices rising: If the project does well and interest in the token increases, the token can gain great value which will bring profit for the holders.

2. Governance

As discussed above holders of governance tokens have the right to participate in the governance of the project.

• Voting Power: Most of the time, every token counts as a vote. People get as many tokens and as much power in decision-making as they have tokens. Two well-known DeFi projects that employ this model are Uniswap and Aave.
• Delegation: This allows users to delegate their votes to others, mostly professionals or experts in a specific domain. For example, Lido Finance, which is a liquidity staking protocol providing Ethereum staking services, allows users to delegate their voting power to validators within its network. Currently, around 34% of Lido token owners have delegated their votes.
• Making amendments: In some big projects, the holders have the option to suggest changes to the protocol, if enough votes are acquired, the suggestion becomes reality.

3. Legal rights (applies only to security tokens)

Security tokens are qualified as securities and to the regulations that go along with them. Security tokens come with legal rights similar to those of traditional securities, including:

• Legally protected: In the United States, the Securities and Exchange Commission (SEC) regulates the issuance and trading of security tokens. In Europe, the new Markets in Cryptoassets Regulation (MiCA) will take effect in 2024 and also will provide a framework with consideration for security tokens.
• Real-world asset representation: security tokens could represent ownership of real-world assets (like stocks, bonds or real estate). BUIDL, BlackRock’s security token, is an SEC Regulation D-compliant private offer for accredited investors.
• Right to dividends and other benefits: As mentioned above, Security Token holders can obtain dividends and other benefits just like regular shareholders do.

The Dangers of Being a Tokenholder

1. Market Fluctuations

Data shows the crypto market is notoriously volatile. A token’s price can rise or fall dramatically over a short time frame, meaning the holder is at risk for loss.

NOTE: Having over 70% of altcoins (cryptocurrencies other than Bitcoin) fell more than 80% accordingly to the CoinMarketCap in the past bear market of 2024.

Case in point — Terra (LUNA), a once-popular blockchain project, collapsed in 2022, and holders of LUNA tokens lost almost all of their money (more than a 99% decrease).

Bitcoin price chart showing a sharp decline, illustrating market volatility risks for token holders during a financial crisis.

2. Legal risks

Due to the immaturity and the potential for rapid change in the regulatory enviroment for cryptocurrencies and blockchain. A lack of legal clarity can expose token holders to risks.

For instance, the SEC sued Ripple, creator of the XRP cryptocurrency, in 2020, claiming that XRP was an unregistered security. This lawsuit made the price of XRP crash (of ~60%).

New regulation: The EU will implement the Markets in Cryptoassets Regulation (MiCA) in 2024. If applied, this regulation would force cryptoasset service providers to submit to a strict set of rules, including KYC for token holders.

In some countries, owning cryptocurrencies is illegal and may even result in imprisonment.

3. Scamming and carpet pulling

Many scams also lie within the cryptocurrency market. In a scam project, the scammer creates fake tokens or uses gimmicks to lure the investor and abscond with money.

2024 the second worst yearlosses in dApps on DeFi (decentralized finance) related scams were approx $4.3 billion (according to Chainalysis).

For example, Squid Game Token (SCAM), a token “inspired” by the popular TV series “Squid Game”, skyrocketed in price and then completely collapsed (price to 0) within minutes, causing many investors to lose everything.

For Token Holders – Trends for 2024

1. Real World Asset (RWA) Tokenization

One of the big trends is putting real-world assets on the blockchain. This also opens up opportunities, including: Access to Untapped sources of capital — tokenized assets will attract worldwide investors; Liquidity — tokens are traded much more easily than real assets; Transparency — all trades are duly recorded.

Another example is Ondo Finance, a DeFi platform that created a tokenized U.S. government bond, which allows users to invest for yields between 5% and 7%.

The Real Asset Tokenization Market Is Headed for $16 Trillion by 2030: Boston Consulting Group (BCG)

2. SocialFi: Implications for content ownership

SocialFi (Social Finance) is the merger of social networking and decentralized finance. SocialFi – a platform that enables users to earn money from content generated or activities noticed in social networks.

For example, Friend. tech, a SocialFi platform built on the Base blockchain, lets people buy and sell “keys” (a type of token) of influencers on social networks. The key holders are in private chat groups and can gain monetary benefits with the growth of the community.

3. AI-Driven Governance

Introduction Artificial intelligence (AI) is a growing technology used in the governance of decentralized autonomous organizations (DAOs). AI can analyze proposals, predict voting outcomes and even make decisions automatically by predefined rules.

For example::

• Fetch. ai this platform uses AI to analyze the proposals in its DAO. AI capable of detecting duplicate proposals, checking feasibility and predicting voting outcomes It streamlines the decision process of token holders, making them faster and more efficient.
• Aragon: This project is building tools for DAOs to automate governance processes using AI. One such example is using AI to disburse funds on an automatic basis based on certain predetermined criteria or to instantiate smart contracts upon certain event criteria.
• Ocean Protocol: It enables the secure and transparent sharing and monetization of data by DAOs This data can be analyzed using AI and make management decision based on analysis.

There are many potential benefits from leveraging AI in DAO governance, such as:

• Improved efficiency: AI can streamline the processes that take up time and resources, which can help make DAOs more efficient.
• Better decision making: AI can process lots of data and make data-driven decisions instead of mere intuition.
• Higher transparency: AI decisions can be made on the blockchain to enable their transparency and auditability.
• Fraud and harm protection: AI can scan for fraudulent activity or harmful proposals, reducing risk to the DAO.

FAQ – (Frequently Asked Questions)

Conclude

Token Holders Role In Crypto:From passive asset holders to active contributors, token holders play an integral part in the cryptocurrency ecosystem. But there are also risks and challenges involved in being a token holder. We hope this article has given you a comprehensive overview, remove the essence of token holder, so you can make wise and reasonable investments

References & Sources

• CoinGecko – 2024 Token Holder Statistics
• Binance Research – DAO governance trends
• SEC – Security token guide
• Chainalysis – Facts on cryptocurrency market scams
• Messari – Token holder data
• Glassnode– Bitcoin wallet address statistics
• Boston Consulting Group – Token Market Forecast