What is an Exchange Token?
Exchange tokens typically fall into the category of utility tokens. These are tokens that grant the users special abilities and features while using the associated platform. In that sense, the tokens are not really cryptocurrencies, so much they act like reward points on the associated exchange. However, exchange tokens do seem to track the success of the underlying exchange. As the exchange grows their user base, the core token also grows in popularity.
Exchange tokens typically give users of the exchange access to different tiers of service. Much like a software as a service business has different tiers. The difference is that exchange tokens tiered memberships are more fluid, and granular, as they are measured in tokens. If we take Binance for example, you can get discounts on trading fees if you pay using your BNB tokens.
Profit Sharing Exchange Tokens
An exchange token can take several forms. In the case of KuCoin, their core token KuCoinShares (KCS) allows users to share in 50% of the transaction fees of the company. In this case, KuCoin Shares looks a lot more like a token that produces dividends. KuCoin Shares rewards are distributed on a daily basis. All fees taken from both their regular exchange and their margin trading exchange are distributed proportionately, to the holders of KuCoin Shares. Based on this mechanism, you might expect there to be more demand or popularity for this sort of token. When it comes down to it, holding KuCoin Shares will net you about a 5% APY based on current trading volumes.
Burn Them All
Exchange tokens are completely controlled and arbitrated by the exchange that launched them. One strategy for increasing the incentive to hold the tokens long term, is to periodically burn a number of the tokens. Burning refers to taking the tokens out of circulation. This is a simple supply and demand tactic used by almost every exchange token. Binance for example has executed 11 (at the time of writing) token burns. This is quite the feat, as Binance has removed more than 15 million BNB from circulation. With a total supply of 200 million, that’s approaching 10% of their total supply. As Binance creates more utility and use cases for their core token, they are also reducing the amount of the token in existence. This recipe of use case creation and periodic burning is one that other exchanges are attempting to emulate. Binance climbed the ranks of cryptocurrency to reach a top 10 spot on coinmarketcap.
The New Exchange on the Block
The newest company to enter the race of the exchanges is Crypto.com. In January 2020, they released the BETA version of their exchange to a portion of their user base, excluding the US. Along with the exchange, they’ve finally given utility to their newest coin in the crypto.com ecosystem, CRO. There exist 100 billion CRO tokens. Currently about 18% of them are in circulation. The way in which Crypto.com has decided to distribute some of the tokens, is through offering an ultra competitive interest rate on staking CRO. When you lock up your CRO tokens within the new Crypto.com exchange, you will earn 20% APY.
That is not the only reason why you might want to buy CRO tokens. You also gain access to their exclusive syndicate events. During these semi-monthly events, you can buy various cryptocurrencies at a reduced price. Usually cryptocurrencies are 50% off. The last feature of CRO tokens at this time, is the fact that you can earn a rebate on transaction fees within the exchange. Depending on how many CRO tokens you’ve staked, you get a higher rebate, and a high contribution amount for syndicate events. CRO has been a top performing coin in 2020, and is certainly one to watch.
The Many Exchange Tokens
Binance is by and large the model for success in the cryptocurrency space. The exchange is merely 3 years old, and is already a multi-billion dollar exchange trading billions of dollars in cryptocurrencies every single day. Many exchanges that have been around for much longer are trying to emulate what Binance has achieved by offering their own exchange token. This is a bit like other cryptocurrencies trying to offer what bitcoin already offers. All other tokens don’t have as potent of a value offering, if they’re second to the table. That’s why outright emulating Binance and BNB won’t work. Exchange need to come up with new innovations that show their user base that they are willing to innovate, and compete with Binance, the goliath.
The other more popular exchanges that have followed suit are BitFinex with LEO, Huobi with Huobi Token, and Okex with OKB.
Which Token Will Rule Them All?
The obvious pick is Binance, and BNB. The rate at which Binance spread around the world, and integrated it into everyday businesses and payment channels is staggering. It is difficult to predict where Binance and BNB will go with such a short track record. However, if their rate of expansion is any measure of their future successes, then Binance still has much to accomplish.
I think the wild card in the mix is CRO and Crypto.com. They’ve taken a much more slow and steady approach to cryptocurrency adoption. They even seem to be willing to integrate with their competitors exchange tokens, despite the obvious conflict of interest. Their willingness to put competition aside to support the overall community is something that will gain the trust of many in the cryptocurrency space. CRO has climbed the coinmarketcap ranks consistently since the beginning of 2020, climbing 10 spots to reach number 12. If Crypto.com maintains their rate of expansion, then BNB may actually have a worthy competitor.