Why Exchange Tokens Are a Winning Formula

 In Market News

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Why Exchange Tokens Are a Winning Formula

While nothing in cryptocurrency can be called a sure thing, crypto-exchange related tokens are as close as they come.

Binance Coin (BNB), Huobi Token (HT), Kucoin Shares (KCS), and Bitfinex (LEO) each figure into the cryptocurrency landscape with unique features that drive market adoption.

The exchange-token formula is rather straightforward – cryptocurrency exchanges are highly profitable businesses which tie tokens into their operations. This is a win-win for exchanges and token holders since the exchange enjoys greater patronage, and the user sees rising token prices.

However, cryptocurrency tokens remain a bit murky for many. It’s our aim here to explain how cryptocurrency exchange tokens work, and why their tokenomics have led to some of the best rises in value in recent years.

Cryptocurrency Exchange Tokens Explained

Cryptocurrency exchange tokens aren’t exactly new in the blockchain industry. Even though exchanges like Coinbase have been around for several years, they never went ahead with a token launch.

Instead, Binance kicked off the exchange token movement back in 2017 with BNB. At the time, BNB revolutionized the way users looked at crypto exchanges. Instead of being static services where you punched in and out to make a trade, exchange tokens made exchanges more interactive.

Whereas you used to pay exchange fees using BTC or fiat currencies, after the introduction of exchange tokens, you were paying fees with the platform’s currency. In practice, this meant that every time you completed a trade and had a fee to pay, you could either do it the old way (BTC or fiat), or you could pay with the exchange token to reduce fees by 50%.

The huge incentive to use the exchange token led to widespread adoption of BNB. In turn, other exchanges like KuCoin, Bibox, Huobi, and Bitfinex followed suit. 

There are a few generalizations that can be made about exchange token functionality. 

  1. Exchange tokens reduce trading fees
  2. Exchange tokens are used to distribute rewards
  3. Some exchange tokens are bought back, then burned by the exchange
  4. Some exchange tokens are used to participate in IEOs

Why Does Binance Coin Value Keep Rising?

Binance’s tokenomics have many provisions in place to keep token value rising. At the center of Binance’s operations is BNB, the exchange platform’s native token. 

The token has several major functions:

  1. At the end of each quarter, Binance takes a percentage of its net profits and uses them to market buy BNB. After purchasing the tokens, Binance burns them from the supply – thus reducing the supply forever.
  2. To participate in Binance’s immensely popular IEO Launchpad, users are required to hold BNB for at least 30 days. The more BNB a user holds in their wallet, the higher the chances for inclusion in the IEO.
  3. Exchange users can reduce trading fees between 20–50% by opting to use BNB.
  4. Binance Chain, the exchange’s blockchain, uses BNB as a form of gas in the same way ETH is used for Ethereum.

Other exchanges have tried to emulate BNB’s success by offering similar tokens, but none have captured the magic exactly as Binance has. However, considering BNB’s place in the crypto market cap top ten, other tokens, such as Huobi’s HT, appear extremely undervalued.

Even though BNB has already taken off, there are many more opportunities within the market to find the next big exchange token.

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