Blockchain & Cryptocurrency Glossary

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Payment Token

1 min read
Pronunciation
[pay‑mənt to‑ken]
Analogy
A payment token is like digital cash—you use it to pay for items rather than to invest.
Definition
A token primarily used as a medium of exchange to purchase goods or services, with a focus on transferability and liquidity.
Key Points Intro
Payment tokens facilitate transactions through:
Key Points

High liquidity: Widely accepted and easily exchanged.

Stable medium: Often pegged to fiat to reduce volatility.

Fast settlement: Quick confirmation times for payments.

Low fees: Optimized for micropayments and remittances.

Example
USDC is a stablecoin used for payments in DeFi and merchant services, maintaining a 1:1 peg to USD.
Technical Deep Dive
Payment token contracts implement ERC‑20 with added features: mint/burn by trusted issuers, pausable transfers for compliance, and integration with payment rails. Some use Layer 2 networks (Optimism, Arbitrum) to reduce fees and increase throughput.
Security Warning
Centralized issuers pose custodial risk; ensure reserves are audited and redemption mechanisms are transparent.
Caveat
Peg stability depends on issuer reserves and market liquidity; extreme conditions can break the peg.
Related Terms
Stablecoin
ERC‑20
DeFi
Custodial Staking

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