Chapter 10 · Why Anyone Can Create a Token
What happens when issuing an asset costs almost nothing?
- Capabilities practiced
- Protocol LiteracyFinancial Literacy
- Hands on
- Issue your own token on testnet, add it to a wallet, and transfer it to another address.
- AI Lab
- Have AI list typical uses and failure cases for five token types, then verify that two of those cases actually occurred.
A Real-World Problem
How long does issuing a stock take?
You need a company, audited financials, brokers, lawyers, accountants, regulatory review, waiting lists, and roadshows. The process usually takes years, costs millions, and involves dozens or hundreds of signatures.
How long does a new asset on a programmable chain take?
Minutes. It costs one transaction fee and requires one person: you.
The consequences are immediately visible. New on-chain assets issued daily can exceed the number of companies listed across global exchanges over decades. Most are never touched again after their first day.
Then a specific example appears: your wallet contains something you never bought, with a professional-looking name and a displayed value of thousands of dollars. Its supply turns out to be an arbitrary number, its issuer an address, and little else is known.
The question is why anyone pays real money for certain assets when anyone can create one from nothing.
Thought Experiment
Return to chapter 7's town and change one rule: anyone may print vouchers for free, choosing any quantity and design.
Year one: A bakery issues bread vouchers. One always redeems for one loaf. Residents accept them because they promise something definite.
Year two: The council issues voting vouchers. They redeem for nothing, but each grants a vote on public affairs. People pay because voting power is useful.
Year three: Everyone understands. Blacksmiths, fishers, and children issue their own vouchers. Thousands coexist.
Most become unwanted the next day, because nobody needs them rather than because they were poorly made.
Year four: A voucher market appears. People trade for resale profit rather than bread. Some vouchers have no redemption or rights but exceed bread vouchers' prices because everyone is discussing them.
Year five: An artist prints one hundred vouchers, each with different art. Number 37 cannot substitute for 82. Someone bids high for exactly one particular piece.
Year six: A new voucher represents a specific sack of wheat in a warehouse and redeems for delivery. It connects on-chain and off-chain things while introducing the warehouse operator's credit.
Ask why some vouchers have value while others are worthless. Their printing costs are identical: zero.
Your Decision
You have a moderate amount of money and four vouchers to consider.
What Happens
Equal printing costs yield radically different prices. One conclusion follows:
Issuance is free; demand is not.
Issuance once supplied scarcity through cost, approval, and eligibility. Being able to issue was itself a filter. That filter has disappeared.
Scarcity moves elsewhere:
| Voucher | Price support | How support disappears |
|---|---|---|
| Bread | Definite redemption | Bakery closes or stops redeeming |
| Voting | Rule-defined rights | Rights become ineffective or issuer controls votes |
| Limited art | A few people want a particular piece | Buyers leave and nobody replaces them |
| Popular | Current attention | Attention shifts, often within days or weeks |
In short, asset prices rest on use, rule-defined rights, or others' demand. The third is easiest to gain and lose.
One counterintuitive point deserves attention.
People often equate fixed supply with scarcity. That is wrong. Copying code, renaming it, and reissuing takes minutes and small fees. Ten thousand neighboring assets can share the same 21-million limit.
What cannot be copied is the chain's consensus, the community's attention, and real demand.
Code is copyable. Demand is not.
Build a Model
Model one: three layers for every token
- Issuance: issuer, supply, and further minting
- Rights: what holding it enables
- Demand: who buys and why
Most issuers start with supply, allocation, and unlocks.
Researchers work backward: who actually needs it today, why, and what remains if that reason disappears?
Model two: five kinds of on-chain assets
Most on-chain assets fit these five categories:
| Plain-language category | What it is | Typical question |
|---|---|---|
| The chain's fuel | Its fee-paying asset | Demand comes from chain use |
| Interchangeable vouchers | Identical, divisible, mergeable units | Who can mint or change supply? |
| Individually distinct vouchers | Unique identifiers, not interchangeable | How many buyers, and who sets prices? |
| Nontransferable personal credentials | Identity, qualifications, experience | Who issues and revokes mistakes? |
| Claims on off-chain things | Property, bonds, commodities, equity | Who holds the underlying, and does law recognize the claim? |
The first three mainly have on-chain risks; the last two mainly off-chain risks. The last category reintroduces off-chain trust unchanged, structurally like chapter 13's stablecoins.
Model three: four questions about a new asset
Keep this order:
- Who can mint more? No mint function, or an address able to increase supply anytime?
- Can rules change? Apply chapter 9's inspection method.
- What does holding it enable? Separate marketing from implemented functionality.
- Does anyone buy it because they need it, beyond resale? The hardest and most important question.
The first three cannot compensate for no answer to the fourth. An unneeded asset with rigorous rules is only a rigorously defined empty file.
What It Is Called
A chain's own asset, paying its fees and usually its security providers.
Its structural distinction is demand directly tied to chain usage. Chapter 7's blockspace market provides that demand.
This explains chapter 8's security-budget connection: both ends belong to the same loop.
Identical, interchangeable, divisible units. Stablecoins and most project tokens belong here.
Public interface standards let wallets, venues, and protocols support them without separate integrations. Standardization enables liquidity to form quickly.
The same standard allows counterfeits with identical names and symbols. Authenticate using contract addresses, not names.
An indivisible asset with a unique identifier, distinct from others.
Digital collectibles are only its best-known use. Tickets, domains, game items, lending positions, and insurance policies can also be individually distinct.
The chain usually stores an identifier and content pointer, while the content lives elsewhere. If that location disappears, your identifier remains but the image may not.
A nontransferable asset issued to an address that cannot sell it onward.
It represents things whose meaning depends on the holder: education, qualifications, credit records, or participation. Selling a diploma defeats its purpose.
Adoption remains limited because issuance authority and mistaken-issuance revocation require answers. Those answers need an authority, returning to what chains seek to avoid.
An on-chain claim on an off-chain asset: government bonds, property, receivables, or warehouse goods.
Its appeal combines on-chain settlement and composability with real off-chain returns.
But the vulnerable parts are predominantly off-chain. Who is the custodian, what do you legally own, and what does the claim mean in court if the issuer fails?
These are chapter 13's stablecoin questions. Assets importing off-chain credit share the same risk model.
Bring it together:
When issuance stops being scarce, demand and rules provide scarcity instead.
Ask who needs the asset and why, before asking how many units exist.
Hands-on
Use testnets throughout. Faucet tokens have no value. Do not try to move them to mainnet or sell them.
The point is experiencing how easy asset issuance is, not learning to launch a coin. That experience changes how you view every new token.
Prepare the testnet environment. Use chapter 5's wallet and obtain faucet tokens for fees.
Deploy the simplest token contract. Choose a standard fungible-token template in a development environment or online deployment tool.
Set name, symbol, and supply. All three are arbitrary choices nobody reviews.
Record deployment cost in test tokens and elapsed time.
Add it to your wallet. It will not appear by default; paste its contract address to display the balance.
Wallet display merely means an address entered a list, not that the asset has value.
Transfer to another address. Create a second testnet address, transfer some tokens, and verify receipt in the explorer.
Its explorer page looks like a famous token's page.
Make the crucial comparison.
Find an unfamiliar token on a mainnet explorer and compare:
| Your token | The unfamiliar token | |
|---|---|---|
| Same-looking contract page? | ||
| Holder count | ||
| Transaction records | ||
| Liquidity pool? | ||
| Mint authority | ||
| Buyers who need it? |
Answer how an explorer distinguishes a used asset from something created five minutes ago.
Also remember not to interact with unexpected wallet tokens. They often bait users into dangerous approvals. Chapter 24 explains.
AI Lab
Ask AI to try:
Classify on-chain assets into native tokens, fungible tokens, NFTs,
nontransferable credentials, and claims on real-world assets.
For each category, provide:
1. Two typical uses, explaining each solved problem in one sentence
2. One real failure case: date, event, and root cause
3. Whether primary risk is on-chain or off-chain
Attach a source link and occurrence date to each case.
Mark uncertain cases “uncertain” and exclude them rather than inventing them.Then choose two cases and verify them yourself.
Find contemporary reporting, then official statements, then relevant transactions in a block explorer. Only agreement across all three establishes the case.
Develop a concrete calibration: how many checked cases are accurate, how many have true events with rewritten details, and how many are invented?
Three common errors are:
- Merging similar events, using one date and another scale
- Assigning a real event to an unrelated project
- Inventing a professionally plausible project name
The third is most dangerous because it sounds expert. Treat unfamiliar, unfindable project names as nonexistent until verified.
Verify these points yourself after using AI
- Find contemporary news, announcements, or on-chain records for every case
- Compare dates, scale, and parties with original sources
- Check for two distinct events merged into one
- Check whether a claimed collapse means zero value or merely a large decline
- Check for invented project names
- Check whether each risk is correctly located on-chain or off-chain
- Check dates and source links on all specific numbers
Real-World Case
Attackers send tokens to many addresses, imitating familiar names and symbols and displaying enticing values.
Trying to sell leads to a page requesting authorization. The loss occurs when signing, not when receiving the token.
Near-zero issuance costs make this viable: reaching a hundred thousand addresses may cost one batch-transaction fee.
Digital collectibles reached very high prices in a boom, then transaction volume approached zero over the following year or more.
The key is how prices fell: after a point, buyers vanished. Holders faced no price rather than merely a lower price.
Chapter 15's distinction is displayed price versus realizable sale price. For assets supported by few buyers, the gap can be total.
Claims on lending or goods lost support when underlying borrowers defaulted or custodians failed.
On-chain records remained intact: claims stayed at addresses, transfers worked, and contracts behaved normally.
The underlying thing was gone. Importing off-chain credit makes on-chain certainty unable to solve that failure.
Low-barrier chains have seen tens of thousands of daily token launches, most losing all liquidity within 24 hours.
This follows from near-zero issuance costs rather than being an anomaly.
Research costs move to users. Regulators and exchanges once supplied the first filter; users must now do it themselves. Stage 4 teaches that skill.
Brokers and platforms have issued tokens tracking US equities. Issuance is easy, but a token proves only its on-chain record. Voting rights, dividends, and insolvency compensation depend on off-chain terms.
Some companies have publicly denied that tokens using their names represent equity. See Robinhood Explained.
Change One Variable
Junk issuance and user filtering costs decline.
But the barrier excludes cash-poor people with ideas as well as junk. Many innovations began with one person's inexpensive deployment.
Also, ten thousand dollars barely deters someone aiming to steal millions. Experimenters may be excluded more than scammers.
This resembles securities regulation and improves disclosure while reducing fraud.
It is slower, more expensive, geographically restricted, and creates a trusted authority center.
There is no universal answer, but permissionless issuance and freedom from personal research cannot both be assumed. Choosing the former assigns research costs to you.
Speculation and market prices disappear with transferability.
Qualifications, identity, participation, and credit records remain meaningful, perhaps more so because nontradable credentials can represent the holder's actual experience.
That is the goal of nontransferable credentials. Their adoption problem is issuance authority rather than technology.
Supply can change, transfers can be prohibited, and balances erased.
Many on-chain assets actually have these powers, hidden in upgrade authority rather than marketing.
Use chapter 9's checks: who can change, when changes take effect, and whether you can detect them. Ten minutes of inspection can prevent many problems.
Takeaway Questions
The sharp question is why this project needs a new token when anyone can issue one.
Often the answer is fundraising or early-user rewards. Those can be legitimate, but differ from operational necessity. Chapter 30 examines when no token is needed.
Value capture first requires someone buying because they need it.
Resale-only demand provides price movement rather than value capture. Distinguishing them filters many projects. Chapter 20 formalizes the check.
Asset categories have different risks.
Fungible tokens face mint authority and liquidity risks; unique assets face absent buyers; off-chain claims face custodians and legal relationships.
Identify the category before locating risk bearers. A mistaken category undermines the rest.
For native tokens, zero price eliminates security-provider remuneration. The security premise fails even if blocks continue.
For application tokens, protocols often continue normally at zero token price. That reveals the token is optional for the product, an important finding rather than an insult.
Chapter Check
Issuance itself is not scarce. Copied, renamed code can be redeployed for minutes and small fees. Ten thousand assets can share the same fixed-supply rule.
What cannot be copied is consensus, community attention, and actual demand.
Code is copyable. Demand is not.
Use: Definite redemption, lost when redemption closes or the underlying disappears.
Rule-defined rights: Votes, revenue shares, or access, lost when rights become ineffective or the issuer controls voting.
Others' demand: Collecting interest or attention, gained and lost easily, often within days or weeks.
The third need not be fraud, but you buy a judgment about future interest rather than a currently verifiable object.
In order:
- Who can mint? Identify the function and holder.
- Can rules change? Inspect upgrades, multisig composition, and timelocks.
- What does holding it enable? Compare marketing with implemented functions.
- Who needs it beyond resale?
The fourth is hardest and central. Without it, excellent answers to the first three leave price without value.
Both have an on-chain claim, an off-chain underlying, and an issuer between them.
Deterministic transfers and balances do not establish the underlying's existence, custody, legal rights, or insolvency treatment.
Apply chapter 13's questions unchanged: reserves, redemption, freezing, report issuer, and report date.
There is no answer key. Look for:
Filtering costs move from institutions to you.
Regulatory and listing reviews once screened what users saw. Now users face the unfiltered set.
This is freedom's cost and the course's purpose. Explain both sides: more scams or faster innovation alone describes only half.
Key idea
Once issuance itself is no longer scarce, scarcity comes from demand and rules, not from issuance.