Crypto exchanges’ native tokens may serve as a decent alternative to both world reserve currencies and popular cryptocurrencies. Trading platforms stake on their own tokens as one of the main business tools, which increases their importance in the eyes of investors, primarily large institutionalists.
Exchanges capable of providing liquidity to such assets increase their chances of becoming leaders in the crypto services market because they not only allow users to trade digital assets but also to participate in over-the-counter trading and ICOs. In 2019, crowdsales conducted by Binance, Huobi, KuCoin and BitMax, amazingly succeeded – new start-up tokens were sold out in a matter of seconds.
So, why exchange tokens are becoming all the rage and what is the difference between them and “traditional” cryptocurrencies?
Unlike Bitcoin, crypto exchange coin’s functionality is not limited to only p2p payments. It’s an integral part of the project’s ecosystem, which means it has some unique benefits for use on the platform by direct users – traders. Depending on the platform, tokens allow them to save on fees and/or receive a cashback, that is not otherwise applicable to major cryptocurrencies. Holders of Binance’s BNB token are entitled to 25% discount while paying trading fees, which normally is 0.1% on each trade. A newly-launching EXMO exchange’s native token EXM promises its users to cut their commissions by up to 50% as well.
The preferential terms of payments for leveraged trades with an internal token are also worth mentioning. Naturally, in return for the opportunity to trade with margin, the platform charges the trader commission for using borrowed funds. While paying for leveraged trades with an internal token, the user gets a discount if compared to using the leveraged currency.
Token serves as a driver for exchange’s internal ecosystem. It accelerates the influx of new investors, boosts cash flow and various technological innovations on the platform, and thus increases asset liquidity. To incentivise the growth of user base, exchanges develop referral programs allowing users to set up their own affiliate network to refer new traders to exchange and earn rewards for all of their trades.
Depending on a specific platform, each holder of a sufficient number of coins on the account is eligible to vote in matters of further platform development or listing/delisting assets on the exchange. Providing the right to an expert voice is one of the additional incentives to attract advanced users. While an exchange aims to conduct a rigorous analysis of the projects considered for listing, it’s possible that its specialists might overlook certain important details. By giving a voice to users, platforms add yet another quality assurance step to the verification process, with the same applying for delisting of those projects that fail to live up to expectations.
An extremely important function of exchanges is access to IEOs where a platform acts as a facilitator. Before announcing the start of a token sale, the exchange’s team conducts a preliminary audit and technical analysis of the project and its token, appraises the project’s potential and investment appeal.
The target audience of the exchanges, however, is not limited to advanced traders. Beginners with a sufficient number of internal coins can improve their trading skills thanks to the copy trading function. It’s a manner of investing where professional exchange traders allow newbies or traders with limited time to mirror all the trades performed by the professional. One way that copy trading differs from investing with a financial consultant is that the newbies don’t need to physically transfer their assets.
Means of payment
Exchange tokens are primarily created in accordance with the ERC-20 standard, one of the most popular in the crypto industry. For the user, this means being able to store tokens on various wallets that support ERC-20. However, such assets are often designed to switch to their own blockchain. For example, the initial Ethereum-based Binance Coin BNB was gradually swapped by the native coin BNB based on the Binance Chain.
An important feature of the exchange сoins is their ability to be accepted outside their home exchange. This makes them Bitcoin competitors in the race for mass adoption. The crypto exchanges are so extensively developing their functionality that their tokens are becoming accepted by partner services and stores.
What is inherent in exchange tokens is the process of so-called coin burn, when a certain amount of an asset is removed from circulation in order to reduce the emission rate. Also, the regular redemption of coins by the exchange administration on the open market is common. This has a beneficial effect on the asset price, as well as its prospects: each burning or redemption makes the token more valuable. As of July 2019, Binance completed eight coin burn events with a 6% decline in the total supply. EXMO Coin is also subject to quarterly utilization starting from 2020, with a gradual increase in supply to 50% of the total circulating coins.
Well, invest or not? Like any new-born digital asset, exchange tokens carry risks for the investor due to the lack of a single standard (the tokens of different exchanges differ from each other and the acquisition must be preceded by a thorough study of white paper), the inability to influence the project team by user (at least, it’s worth looking into the current state of the project’s affairs), possible hacker attacks, as well as changes in the political field in a particular jurisdiction. But the sharp increase in the price of BNB or KuCoin (KCS) suggests that new coins are also worth paying attention to.