1. Layer 1s (Ethereum, Solana, Avalanche)

Simple Definition:

Layer 1s are base blockchain networks that operate independently and process transactions on their own native infrastructure.

They are the foundational blockchains that other projects can build on.

Examples:

ETHEREUM (ETH)

  • Most widely used Layer 1

  • Supports smart contracts (self-executing code)

  • Hosts DeFi, NFTs, DAOs, and more

  • Uses Proof of Stake (PoS) after the Merge

SOLANA (SOL)

  • Ultra-fast, high-throughput Layer 1

  • Uses Proof of History (PoH) combined with PoS

  • Designed for scalability and speed

  • Home to many DeFi, NFT, and GameFi appS

AVALANCHE (AVAX)

  • Uses a unique consensus protocol for fast finality

  • Supports subnets (custom blockchains)

  • Ethereum-compatible via Avalanche C-Chain

  • Emphasizes modularity and speed

Why Layer 1s Matter:

  • They define the rules and security of everything built on top

  • You invest in Layer 1s like you'd invest in a nation’s economy

  • The stronger the network activity, the more valuable the native token (ETH, SOL, AVAX)

2. Layer 2s and Scalability Solutions

Simple Definition:

Layer 2s are protocols built on top of Layer 1 blockchains to make them faster and cheaper without compromising security.

They process transactions off-chain and then submit summaries or proofs to the Layer 1.

Types of Layer 2s:

ROLLUPS (ON ETHEREUM)

  • Optimistic Rollups (e.g., Arbitrum, Optimism): Assume transactions are valid unless challenged.

  • ZK Rollups (e.g., zkSync, StarkNet): Use zero-knowledge proofs for instant verification.

STATE CHANNELS

  • Peer-to-peer payment channels (e.g., Lightning Network for Bitcoin)

  • Ideal for rapid, low-fee transactions

SIDECHAINS

  • Independent chains that run in parallel to a Layer 1 (e.g., Polygon)

  • Can be faster but have weaker security assumptions

Why Layer 2s Matter:

  • Solve the blockchain trilemma: scalability, security, decentralization

  • Bring crypto mainstream by reducing fees and increasing usability

  • Vital for high-traffic applications like DeFi and gaming

3. Utility Tokens vs. Governance Tokens

Utility Token

  • Provides access to a product, service, or ecosystem

  • Not intended as an investment (but often used that way)

Examples:

  • BNB: Used for fees on Binance

  • LINK: Powers the Chainlink oracle network

  • MATIC: Secures and operates the Polygon network

Governance Token

  • Gives holders voting power over decisions (e.g., fees, protocol upgrades)

  • Used in DAOs and DeFi governance

Examples:

  • UNI: Vote on Uniswap protocol changes

  • AAVE: Vote on lending pool configurations

  • COMP: Influence Compound governance

Difference in Advisory

UTILITY TOKEN

  • Function: Access or power a system

  • Regulation: Often treated like SaaS

  • Value driver: Network use

GOVERNANCE TOKEN

  • Function: Vote on changes/upgrades

  • Regulation: Often seen as securities

  • Value driver: Influence over protocol

4. Stablecoins: USDC, DAI, Algorithmic

Simple Definition:

Stablecoins are cryptocurrencies pegged to a stable asset, usually USD, designed to minimize volatility.

Types of Stablecoins:

FIAT-COLLATERALIZED

  • Backed 1:1 by real-world assets (dollars in a bank)

  • Fully redeemable

  • Example: USDC, USDT

CRYPTO-COLLATERALIZED

  • Overcollateralized by volatile crypto assets

  • Uses smart contracts to maintain peg

  • Example: DAI (backed by ETH, USDC, etc.)

ALGORTIHMIC STABLECOINS

  • No real collateral — use code to maintain price peg

  • Adjust supply dynamically (mint/burn)

  • High risk: many have collapsed (e.g., Terra/LUNA)

Why Stablecoins Matter:

  • Provide a safe haven during market volatility

  • Used heavily in DeFi for trading and earning yields

  • Critical in on-chain finance and tokenized economies

5. Meme Coins, DeFi Tokens, NFTs, RWA Tokens, AI Tokens

Meme Coins

  • Community-driven, often created as a joke

  • Value comes from memes, virality, and cult status

  • High risk, high reward

Examples:

  • DOGE

  • SHIB

  • PEPE

  • BONK

Advisory View:

  • Only for speculative plays

  • Can be used to ride early hype cycles

  • Momentum + narrative driven

DeFi Tokens

  • Power decentralized financial apps like lending, swapping, yield farming

Examples:

  • AAVE - lending

  • UNI - DEX governance

  • CRV - stablecoin swaps

  • LDO - staking

Advisory View:

  • Assess token utility, governance rights, and revenue share

  • Look at TVL (total value locked) and protocol adoption

NFTs (Non-Fungible Tokens)

  • Unique, indivisible tokens representing ownership of digital or physical items

  • Built on ERC-721 or ERC-1155 standards

Use Cases:

  • Art

  • Collectibles

  • Gaming Assets

  • Music

  • Tickets

  • Real Estate Deeds

Advisory View:

  • Value = rarity, cultural significance, community

  • Liquidity is lower than fungible tokens

RWA Tokens (Real World Assets)

  • Tokens backed by real assets: real estate, stocks, bonds, gold

  • Bridge traditional finance (TradFi) with DeFi

Examples:

  • Ondo

  • Centrifuge

  • RealT

Advisory View:

  • Good for conservative investors

  • Regulatory compliance is key

AI Tokens

  • Power crypto protocols using or enabling AI

  • Often infrastructure-related (data sharing, compute power, AI marketplaces)

Examples:

  • FET - Fetch.ai

  • AGIX - SingularityNET

  • Ocean - data marketplace

Advisory View:

  • Momentum-driven

  • Strong narratives (AI x Crypto = hot combo)

  • Tech adoption is still early

Summary

Layer 1s

  • Purpose: Base blockchains

  • Example Tokens: ETH, SOL, AVAX

  • Risk Level: Medium

Layer 2s

  • Purpose: Scalability solutions

  • Example Tokens: ARB, OP, MATIC

  • Risk Level: Low-Mid

Utility

  • Purpose: Access to service or function

  • Example Tokens: BNB, LINK, MATIC

  • Risk Level: Low-Mid

Governance

  • Purpose: Vote on project decisions

  • Example Tokens: UNI, AAVE, COMP

  • Risk Level: Mid

Stablecoins

  • Purpose: Pegged to $1, low volatility

  • Example Tokens: USDC, DAI, USDT

  • Risk Level: Low

Meme Coins

  • Purpose: Hype and virality

  • Example Tokens: DOGE, SHIB, PEPE

  • Risk Level: High

DeFi Tokens

  • Purpose: Power DeFi protocols

  • Example Tokens: AAVE, UNI, CRV

  • Risk Level: Mid

NFTs

  • Purpose: Unique ownership, collectibles

  • Example Tokens: BAYC, Azuki, Pudgy

  • Risk Level: High

RWA Tokens

  • Purpose: Tokenized real-world assets

  • Example Tokens: Ondo, RealT, Centrifuge

  • Risk Level: Low-Mid

AI Tokens

  • Purpose: Crypto-AI infrastructure

  • Example Tokens: FET, AGIX, Ocean

  • Risk Level: High