Coinlist: Why is the number of tokens in the crypto market increasing?

Source: Coinlist Blog
Compiled by: Chain Catcher
According to CoinMarketCap, there are currently over 6,000 tokens in the crypto market. This is about 35 times the number of different fiat currencies in the world.
Many people ask: Why are there so many tokens? Twelve years ago, there was only Bitcoin, and now, almost every economic sector has at least one token with some functionality. Are the new tokens sustainable?
Bitcoin maximalists quickly point out that over time, many of the newly launched tokens are destined to fail and gradually disappear. While many have predicted the death of new token issuance, they couldn't be more wrong. If the past five years have taught us anything, it is that the next five years will see the creation of more token networks, not fewer.
Decentralized software is eating away at centralized platforms, and we are witnessing more and more startups building decentralized versions of Web 2.0 platforms and services. These Web 3.0 ecosystems will be open-source, permissionless, and supported by token economies.
To understand the future of token economies, we need to understand how the concept of "trust" on the internet has shifted from Web 1.0 to Web 3.0.
Web 1.0: Open Standards
In Web 1.0, early internet protocols like IP, SMTP, and HTTP were designed with openness and inclusivity in mind. Open standards mean that anyone, anywhere can build on existing open-source software without anyone's permission. Because these core protocols are open-source, no one can unilaterally control them. However, the problem is that open-source is hard to monetize, so the business models of these startups relied on building proprietary, closed protocols on top of the internet's open protocols. This led to the platform and tech giants of the Web 2.0 era.
Web 2.0: Proprietary Networks and Monetization
In Web 2.0, tech giants became trusted intermediaries and gatekeepers of the internet. Everything we do online today, such as searching the web, connecting with people, storing files, and social communication, requires us to trust the proprietary, opaque code written by these companies. As a result, these tech giants now have significant control over their users and third-party developers. At any time, without any warning, these companies can (and often do) change any aspect of their platforms, whether authorized or not. These actions often come at the expense of small companies and users, which is frequently seen in the news.
Web 3.0: Open Networks and Monetization
In Web 3.0, the focus has shifted to empowering network participants rather than companies. Startups are leveraging peer-to-peer open-source technology and blockchain to make the internet more open, decentralized, and censorship-resistant, just like Web 1.0. With the advent of Ethereum, complete strangers can interact through mathematically verified smart contracts without intermediaries.
Smart contracts can be combined in novel ways to create decentralized versions of Web 2.0 platforms and products: platforms like Uniswap, Compound, and Aave are addressing inefficiencies in traditional finance and banking. Platforms like Filecoin and Swarm are creating decentralized storage markets to compete with AWS.
Cryptogames like Axie Infinity, CryptoKitties, and Gods Unchecked give users true (fully liquid + tradable) ownership of in-game items, which is starkly different from traditional games (like Fortnite, a popular game in the U.S.). In traditional games, in-game items are 100% owned by platforms like Fortnite, not the users. Recombining the building blocks of smart contracts and applying them to more complex verticals (like search engines and social networks) is just a matter of time.
Tokens Power the Creation and Monetization of Open Services
All these new applications, use cases, and verticals will be powered by token networks that can: 1) create open, decentralized networks 2) incentivize network participants in new ways, including users, developers, investors, and service providers. Token networks reverse the centralization and rent-seeking nature of the internet. In addition to tokens associated with open protocols continuing to thrive, there will also be social tokens and creator tokens that enable brands, communities, and individuals to scale and experiment with diverse business models and monetization strategies.
Moreover, well-designed token networks need to include an effective mechanism to incentivize network participants to overcome the guiding issues that hinder traditional networks, punish malicious behavior, and work towards a common goal—the growth of the network and the functionality of the tech stack. In fact, they combine the social benefits of Web 1.0 open protocols with the financial benefits of Web 2.0 proprietary networks.
As more entrepreneurs and developers build decentralized versions of Web 2.0 software supported by token networks, the internet will become a fairer and more accessible place. However, it is worth noting that not all Web 2.0 platforms will have decentralized version competitors, as certain use cases (like healthcare platforms) are better suited for Web 2.0 rather than Web 3.0.
Composability = Innovation = More Token Networks
Another key factor leading to the increase in the number of token networks is the concept of "composability." Because smart contracts can interact with each other programmatically, they allow for composable code, much like LEGO blocks. This enables developers to launch their own projects and communities without having to build everything from scratch.
Since smart contract platforms like Ethereum and Solana are massive open sandboxes, developers of derivative projects can benefit from the audience and network effects inherent in the smart contract platforms themselves. For example, many DeFi projects are built by combining various other DeFi applications and building blocks. Moreover, due to the composability of open-source software, anyone can leverage existing programs and modify or build upon them, unlocking entirely new use cases and token networks that have yet to exist.
This is why there will be more tokens, not fewer.