Native tokens in the extended UTXO model

Blockchain tokens can be used for many different purposes – for example, to send and receive payments, access services in decentralized applications (DApps), or store and transfer value. The utility of a token is determined by its use case, the market, or the community that issues or adopts it. Tokens can be:

• Fungible – identical and interchangeable, like reward points or units of the same currency
• Non-fungible (NFTs) – often representing unique items such as collectibles or credentials.

Tokens created to serve a specific purpose are often referred to as custom or user-defined. These may include issuing a new cryptocurrency, representing access rights, or enabling in-app transactions.

On many blockchains, creating custom tokens traditionally requires writing and deploying smart contracts – code that defines how the token behaves and how it can be transferred, created (minted), or destroyed (burned).

While powerful, this approach makes these user-defined tokens non-native, meaning the underlying blockchain’s fundamental structure does not directly support them. This can lead to inefficiencies, higher costs, and increased complexity.

Native tokens, built into the foundation

Cardano’s extended UTXO (EUTXO) model builds on the original Bitcoin UTXO design, adding support for smart contracts while preserving transaction determinism. EUTXO processes transactions with clearly defined inputs and outputs, enabling parallelism and predictable outcomes – unlike account-based models that rely on a shared global state.

A key advantage of Cardano’s EUTXO model is that it natively supports custom tokens. This means developers can create and manage their own tokens without relying on complex smart contracts. These tokens are treated as first-class citizens by the ledger, enabling secure and efficient handling of many token types directly at the protocol level.

Why native tokens matter

Integrating token functionality directly into the Cardano ledger brings several key advantages over traditional smart contract-based approaches:

• Efficiency and lower costs. Because native tokens are supported at the ledger level, their creation, transfer, and management require no custom contract logic. This reduces transaction size, increases throughput, and significantly lowers fees. Operations are faster and consume fewer resources compared to tokens built with smart contracts.
• Security and simplicity. Native tokens inherit the same security properties as ada. There is no additional contract logic to audit or maintain, reducing the risk of vulnerabilities and exploits. This makes native tokens simpler and safer to use in DApps.
• Developer experience and compatibility. Creating and managing native tokens is more straightforward than writing and deploying custom contracts. Native tokens integrate seamlessly with wallets, tools, and the wider ecosystem.

Multi-asset support

Multi-asset support in Cardano’s EUTXO model allows transactions to handle multiple types of tokens within a single output. Instead of being limited to the native cryptocurrency, each transaction output can include a token bundle – a structured collection containing various tokens in different quantities. This makes it possible to transfer multiple assets, such as ada and several custom tokens, in one transaction. 

The minting and burning of these native tokens is managed through forging policy scripts. These scripts define the conditions under which a specific token can be minted or burned. When a transaction includes a token operation, the ledger checks the relevant script to verify that the action follows the established rules. Because these scripts operate within the EUTXO framework, they benefit from the model’s precision and determinism, ensuring clear, predictable behavior and strong auditability across all token operations.

Use cases

Native tokens enable a wide range of applications by combining secure on-chain logic with the flexibility of custom asset creation. Some examples include:

• Digital collectibles and credentials. NFTs can represent ownership of digital art, in-game assets, event tickets, or even academic credentials – benefiting from the security and transparency of the Cardano ledger.
• Supply chain and asset tracking. Tokens can represent physical items and track their journey across a supply chain. Because native tokens can be uniquely defined and managed without smart contracts, this approach is more efficient and secure.
• Algorithmic stablecoins. Native tokens can represent assets with values tied to external references. Forging policy scripts define the rules that keep these tokens stable, enabling automated monetary policies and more robust decentralized finance (DeFi) primitives.
• Tokenized roles and permissions. Roles within a decentralized system – such as operator, validator, or participant – can also be represented by unique native tokens. Holding a token grants permission to perform specific actions, allowing for modular and transferable system designs.
• Access control and licensing. A token could grant access to a service, event, or dataset. For example, holding a specific token could unlock premium features in a DApp or grant entry to a token-gated community.
• Decentralized governance. Native tokens can represent voting rights or stake in decision-making processes. This enables on-chain governance systems with transparent and auditable participation.

Conclusion

By embedding native assets into the core protocol, EUTXO establishes a resilient and scalable foundation that reduces complexity, expands a blockchain’s potential, and makes Cardano more accessible to developers and users – without compromising security or performance.

Learn more about native tokens:

• Native tokens overview on Cardano Docs
• Ledger explanations about native tokens
• Native tokens on Cardano blog post
• Native tokens on Cardano; core principles and points of difference blog post
• UTXOma: UTXO with Multi-Asset Support research paper.