---
url: /academy-handbook/foundation/week-1/part-5-crypto-asset-map.md
---
# Week 1 · Part 5 — What crypto assets actually are

You know how state changes and how the network agrees on it. This is what is
being tracked.

```mermaid
flowchart TD
  A["<b>Crypto assets</b>"]
  A --> Q1["<b>1 · How does it exist?</b>"]
  Q1 --> N["<b>Native asset</b><br/>BTC · ETH · SOL<br/><i>built into the chain</i>"]
  Q1 --> T["<b>Token</b><br/><i>created by a contract</i>"]
  T --> Q2["<b>2 · What role or shape?</b>"]
  Q2 --> S["<b>Stablecoin</b><br/>USDC · USDT"]
  Q2 --> G["<b>Governance</b><br/>UNI · AAVE"]
  Q2 --> W["<b>Wrapped asset</b><br/>WETH · WBTC"]
  Q2 --> F["<b>Non-fungible</b><br/>NFTs"]
  A --> Q3["<b>3 · Who controls the keys?</b>"]
  Q3 --> C["Custodial"]
  Q3 --> SC["Self-custodial"]
```

Beginners file all of this under "crypto" and assume the differences are
branding. They are not — but they are also not five mutually exclusive buckets.
One asset can answer several questions at once: USDC is a token, a stablecoin,
an ERC-20 and fungible, and it can be held custodially or self-custodially.

::: important The distinction everything hangs on
\==**A native asset is built into the blockchain itself. A token is an asset whose
balances and rules are implemented by a smart contract.**==
:::

## Learning objectives

* Distinguish a coin from a token, and explain why the distinction is structural
* Classify an asset by how it exists, its common token role or shape, and who controls the keys
* Explain why a stablecoin carries risks a native asset does not
* Explain the difference between custodial and self-custodial holdings

## Core

### Coins and tokens are not the same shape

**Native assets** are built into the protocol. ETH is not stored in a contract —
ETH balances are part of Ethereum's state, at the same level as the chain itself.

**Tokens** are created by smart contracts. A token contract is a program holding
a table of who owns how much. USDC on Ethereum is one contract's ledger.

| Aspect | Native asset (ETH) | Token (USDC) |
|---|---|---|
| Exists because | The protocol says so | A contract says so |
| Can be frozen by an issuer | No | **Yes**, if the contract allows it |
| Can be lost to a contract bug | No | **Yes** |
| Pays the transaction fee | **Yes** | No — you need ETH to pay the fee as well |

::: warning Every beginner hits this once
\==**Holding only USDC on Ethereum means you cannot move it.**== Moving it requires
calling a contract, calling a contract requires gas, and the resulting
transaction fee is paid in ETH.
:::

### Three questions to ask about any asset

Ask these questions in order:

1. **How does it exist?** Is it a native asset built into the chain, or a token created by a contract?
2. **If it is a token, what role or shape does it have?** Stablecoin, governance token, wrapped asset and NFT are common examples, not one exhaustive taxonomy.
3. **Who controls the keys?** Custodial and self-custodial describe who can authorise activity; this axis cuts across the others.

These labels can overlap. WETH is a token, a wrapped asset, an ERC-20 and a
fungible asset. The point is to describe the asset accurately rather than force
it into one bucket.

:::: tabs
@tab Native

The chain's own asset. Pays fees, secures the network, understood by the
protocol itself.

| Asset | Chain | Note |
|---|---|---|
| BTC | Bitcoin | Deliberately limited. Designed to be money and little else |
| ETH | Ethereum | Pays transaction fees, and is staked to secure the network |
| SOL | Solana | Same roles on Solana |

No issuer. Nobody can freeze your BTC or reverse your ETH transfer — and nobody
can help you if you lose your keys.

@tab Stablecoins

Tokens designed to hold a steady value, almost always one US dollar.

| Asset | Issuer | Model |
|---|---|---|
| USDC | Circle | Cash and short-term US treasuries, with public attestations |
| USDT | Tether | Backed by reserves; the largest by volume |

**Why they matter.** Native assets move in price, which makes them awkward as
money — nobody wants to be paid in something worth 20% less by Friday.
Stablecoins give a stable unit that still moves at blockchain speed. Most
real-world payment usage runs through them.

**And the trade-off.** A dollar-backed stablecoin is a *claim on an issuer*.
Holding USDC means trusting the blockchain, the token contract, **and Circle** —
that reserves exist and redemption is honoured.

That third one is new. It is a centralised trust assumption inside a
decentralised system, and it is not hidden — it is the deal. Regulated issuers
can and do freeze addresses when compelled by law enforcement.

@tab Governance

Tokens tied to a specific application, usually carrying a vote over how it
changes.

| Asset | Protocol | Roughly |
|---|---|---|
| UNI | Uniswap | Governance over the Uniswap protocol |
| AAVE | Aave | Governance, and a role in the safety module |

What a governance token actually entitles you to varies enormously, and is often
less than the marketing implies. Week 4 covers this properly. For now: holding
one is participation in a decision process, which is a different kind of thing
from holding money.

@tab Wrapped

A token that *represents* another asset, so it can be used where the original
cannot.

| Asset | Represents | Why it exists |
|---|---|---|
| WETH | ETH | ETH is native, so it doesn't follow the token standard contracts expect |
| WBTC | BTC | Bitcoin can't run Ethereum contracts |

**WETH is mechanically simple: deposit ETH into the contract, receive WETH, and
redeem it through the same contract.** Unlike custodial wrapped assets, there is
no external custodian holding the underlying ETH; the main dependency is the
contract itself.

**WBTC is a different animal.** Real BTC sits on Bitcoin, held by a custodian,
while a token on Ethereum represents it. That token is worth a bitcoin only as
long as the custodian holds the bitcoin and honours redemption.

@tab NFTs

Fungible means interchangeable — any 1 USDC is any other. **Non-fungible means
each unit is individually distinct.**

Uses go well beyond profile pictures: event tickets, in-game items, domain names
like ENS, credentials, ownership records.

::: warning The most common NFT misconception
\==**The image is usually not on the blockchain.**== Storing images on-chain is
prohibitively expensive, so the token typically holds a *link*. If whatever
hosts that file disappears, the token remains and the picture does not.
:::
::::

### Custodial versus self-custodial

Cutting across the categories above: **who holds the keys?**

| Aspect | Custodial | Self-custodial |
|---|---|---|
| Who holds the keys | An exchange or company | You |
| What you have | An account balance and a claim | The asset itself |
| Lose access / forget local wallet password | Account/support recovery may help | A recovery phrase or valid key backup can restore access; without a valid backup, no support desk can restore it |
| Custodian / exchange fails | You depend on that custodian and may become a creditor | Not directly exposed to that custodian; issuer/token risks may still remain |
| Token-level controls | The platform may freeze its account | An issuer may still freeze its token |

If you buy ETH on an exchange and leave it there, you do not directly control
the on-chain ETH. The exchange controls custody on your behalf, while your
account records a claim or balance with the exchange. Usually equivalent. In
the cases where they diverge — and there is a long history of exchange failures
where they diverged badly — the difference is everything. Self-custody removes
the platform's custody control, but it does not remove token-level controls
built into an asset such as a stablecoin.

::: tip "Not your keys, not your coins"
This is not advice to move everything to self-custody. Self-custody transfers
the entire security burden to you, and [Week 0 Part 4](../../getting-started/safety.md)
explains how much burden that is. It is a statement about what you *own* — and
both options are legitimate for different purposes.
:::

## Landscape

* **Meme coins** — tokens whose demand is driven largely by attention and community. When attention leaves, liquidity and price can fall quickly
* **RWA** — real-world assets like treasuries or property represented on-chain. The token cannot remove the legal and custody arrangements around the underlying asset
* **LSTs** — liquid staking tokens, representing staked assets while staying tradable. Their value also depends on the staking system and redemption path
* **Algorithmic stablecoins** — tokens aiming for stability through rules or incentives rather than straightforward reserves. A broken design can lose its peg, as Terra/UST did in 2022
* **ERC-20 / ERC-721 / ERC-1155** — standards that give applications common token interfaces. They improve interoperability, but do not make every token safe or liquid. Week 3
* **Token supply terms** — circulating, total and fully diluted supply measure different things. Comparing the wrong one can make a project's scale or future dilution look misleading

## Worked example

One person's holdings, sorted by what could actually go wrong. **The risks
differ in kind, not just in size.**

| Holding | Category | What has to hold up |
|---|---|---|
| 0.5 ETH in their own wallet | Native, self-custodial | Ethereum works; they keep their keys safe |
| 200 USDC in the same wallet | Stablecoin, self-custodial | The above, **plus** the contract works, **plus** Circle holds reserves |
| 100 UNI in the same wallet | Governance, self-custodial | The above, minus the issuer |
| 0.01 BTC on an exchange | Native, **custodial** | Bitcoin works, **and the exchange stays solvent** |
| 1 NFT in their wallet | Non-fungible | Ethereum works, keys safe, **and someone keeps hosting the image** |

Five holdings, five failure modes. The exchange BTC is the only holding here
exposed to exchange-custodian bankruptcy risk. The USDC is the only one where
an issuer could freeze you. The NFT is the only one that can silently become a
broken link.

::: important This is the actual skill
Being able to build this table for anything you hold. [Week 2 Part 6](../week-2/part-6-trust-and-risk-map.md)
generalises it into a tool you can point at anything.
:::

::: details Further exploration — optional, not assessed

* [ethereum.org — Stablecoins](https://ethereum.org/stablecoins/) — the models compared, including algorithmic
* [ethereum.org — NFTs](https://ethereum.org/nft/) — uses beyond collectibles
* [ethereum.org — What is ether](https://ethereum.org/eth/) — why the native asset is structurally different
* **Tokenomics** — supply schedules, emissions, incentive design. A large field, deliberately not compulsory
  :::

::: details Sources and attribution

* [ethereum.org — Stablecoins](https://ethereum.org/stablecoins/) — Reuse (CC BY 4.0), adapted
* [ethereum.org — ERC-20 token standard](https://ethereum.org/developers/docs/standards/tokens/erc-20/) — Reuse (CC BY 4.0), adapted
* [ethereum.org — NFTs](https://ethereum.org/nft/) — Reuse (CC BY 4.0), adapted
* [ethereum.org — What is ether](https://ethereum.org/eth/) — Reuse (CC BY 4.0), adapted
* [Web3 Internship Handbook](https://web3intern.xyz/zh/blockchain-basic/) — Reuse (permission granted); CryptoPunks visual adapted with permission

*Named assets are illustrative examples chosen for recognisability, not
recommendations. Nothing here is financial advice.*
:::