From Liquidity Offerings to Investments: The Evolution of Exchange Tokens

Exchange Tokens Are Becoming Significant Profit Vehicles

Ever since the great ICO rush of 2017-2018, native tokens have become exceedingly common and crypto exchanges today are no different. These specifically created exchange tokens were meant to offer users and traders ease in liquidity, but have instead become major tokens. With the likes of BNB beating regular cryptocurrencies and is now  number three in terms of market capitalization.

Why The Need Of Exchange Tokens?

Like native tokens, exchange tokens are created to be used within the trading environment. Generally, these tokens serve three main purposes; liquidity, means of payment and governance. 

It can be argued that the most important is liquidity. Unlike traditional exchanges that have all the assets listed against one common base in fiat such as USD, crypto exchanges can have multiple crypto to crypto trading pairs. With so many of these digital coins and tokens zipping around online today, exchanges can have a tough time deciding on which trading pairs to offer. The lack of a common denominator can lead to difficulties for users to exchange their assets, which is a big no-no for any exchange. Having a localized token gives exchanges the ease to offer trading of all listed coins against it.

At the same time, the exchange tokens can also serve as a means of payment. Users are offered massive discounts in trading fees if they use the exchange’s token. This can be a flat percentage advantage or be tiered inline with the token holdings of a user. In both cases, the discounts are an incentive used by the exchanges to promote trading on the platform.

There is another benefit, usually limited to decentralized exchanges (DEXs), that exchange tokens offer to traders. Taking a page out of democratic governance, the exchange tokens may also give users the right to vote and participate in different upgrades and have a say in the future of the platform. 

But Are They Exchange Tokens Anymore?

Take a look at a few of the top exchange tokens right now and you will see that these have outstripped major cryptocurrencies in terms of growth. The rapid rise in value essentially breaks the concept of providing above mentioned features. Look at BNB for example, you would rather hold on to the token than use it to pay for your trades, right?

But what has driven the value? Let’s take a generic look. The largest crypto exchanges today are an irony, centralized trading platforms that are dealing in decentralized assets. A few platforms make a strategic decision to launch their own DEX to cater to an ignored market. Lo and behold, they already have a token in existence that will serve as the native one. In short, the token is no longer an exchange tool, but a utility one, serving much like Ethereum’s gas.

Some exchanges such as Binance have taken the next step. Apart from its own DEX and Binance Chain, there is a smart contract and DeFi enabled Binance Smart Chain. The current crypto boom has seen a number of different projects being launched on the Binance chains and this has fueled its growth.

Another similar exchange token that is seeing immense growth (although no way near BNB’s) is OKEx’s OKB. OKExChain is also a community driven blockchain with DeFi and NFT capability and is a major factor in OKBs price boost.

Exchange Tokens’ Future

As more people adopt cryptocurrencies, exchanges will find opportunities to serve their never ending appetite by developing their own blockchain solutions. These solutions will drive adoption of the exchange tokens and this forms a loop that eventually raises the demand of the tokens.

Exchange token users are today more likely to hodl than to spend. The swift rise skews the supply and demand curve, leading to higher values and as such, have become good options of investment.