Native exchange tokens have appreciated in value alongside the broader cryptocurrency markets over the past few months, changing the representation of what these tokens were originally intended for.
Bitcoin (BTC), Ether (ETH) and other cryptocurrencies have grown exponentially over the past six months. This is partly because large institutional investors are finally entering the markets in a meaningful way. Grayscale Investments, MicroStrategy, and Tesla were some of the biggest names for major acquisitions of Bitcoin and other cryptocurrencies, driving new all-time highs in values.
This has impacted various tokens that either support the exchange of cryptocurrencies or – like Ethereum’s gas fees for processing transactions – act as fuel for the underlying blockchain.
Exchanges that use their own tokens to power their ecosystems have also seen their native cryptocurrencies grow in value. Two prime examples of this are Binance’s native Binance Coin (BNB) token and the decentralized financial platform Uniswaps UNI-Token and OKEx-Exchange-Token, the OKB.
BNB saw its value rise from $ 38 per token on Jan 1 to an all-time high of $ 335 on Feb 19. Likewise, UNI rose from $ 4.90 per token on January 1 to just over $ 35 on March 22, also an all-time high. Since the beginning of the year, OKB’s valuation has tripled from around USD 7 to over USD 21 by February 22.
Before we get into the price increase of these cryptocurrencies, however, let’s take another look at the basics of exchange tokens.
What is an exchange token?
Cryptocurrency exchange tokens fulfill a variety of important roles for the platforms on which they operate.
For one, they can increase both liquidity and trading activity. Liquidity on an exchange refers to the ability of a token to be converted into another cryptocurrency or fiat currency. Native exchange tokens can be used as an incentive to increase liquidity on the exchange by assigning rewards for trading volumes or for users who use tokens.
Exchange tokens are also used to provide fee discounts to merchants and users. As a rule, users receive discounts when they pay fees with the cryptocurrency, regardless of whether it is a central or a decentralized exchange.
Some cryptocurrencies act as fuel for exchanges by allowing users to participate in governance mechanisms (such as voting) or by offering exclusive benefits to holders.
Take BNB, for example. It is the means for transactions in the Binance chain and is also used to pay transaction fees on the exchange.
Have barter tokens become a good investment?
While they serve a variety of purposes on their respective platforms, their rapid appreciation in value across the ecosystem begs the question of whether Exchange tokens are now becoming a profitable investment for users.
The type of a particular token and the role it plays in its exchange ecosystem also affect its value and potential for value over time. Todd Crosland, founder and CEO of Cryptocurrency Exchange CoinZoom, told Cointelegraph, “There was sort of a deal from using Exchange tokens solely for trading fee rebates and other benefits to physical value.”
Additional benefits have also increased the value of these various tokens through rewards, discounts, and other incentives, as Crosland explained in his correspondence with Cointelegraph.
According to Jonathan Leong, CEO of Cryptocurrency Exchange BTSE, the utility of exchange tokens like BNB and UNI is a driving force behind their appreciation. In the case of BNB, Leong highlighted the fact that with the launch of Binance Chain, the Exchange token also became a utility token. This essentially made BNB tokens an equivalent of Ethereum’s ETH tokens, which are used to pay for gas fees.
While there seems to be a growing sentiment that prominent exchange tokens could become profitable long-term investments, these tokens are also subject to the same volatility that Bitcoin and other prominent cryptocurrencies are notorious for. As Leong pointed out in his comments on Cointelegraph:
“The volatility can be explained because things are really mainstreaming and the value of DeFi really comes in and people see the possibilities with things like Uniswap, Curve, Aave and Saffron and all these other things. I think that’s why there’s a big surge, there’s a lot of money going in – it’s the bull cycle. This is a highly speculative new technology that can explain volatility as well. “
A Binance spokesperson explained the exchange’s belief that the value of BNB will continue to increase as more applications and projects run on the Binance Smart Chain: “BNB’s use cases have extended to hundreds of applications on numerous platforms and projects within the Expanded crypto ecosystem. “The exchange representative added:
“BNB is used to pay transaction fees on Binance.com, Binance DEX, Binance Chain and the community-driven BSC. BNB is also used on several BSC-based DeFi platforms that offer financial payment solutions. The more people use BSC, the more useful BNB will have and the more value BNB will have. “
However, the Binance spokesman declined to comment on whether the company believes the appreciation of BNB tokens has exceeded expectations.
As the cryptocurrency markets continue to hold the gains made in recent months, Exchange tokens also allow users to hold value on these platforms, which is evident in their market cap. The market capitalization of the BNB is almost 40 billion US dollars, which is almost the same as the total capitalization of the Tether token (USDT).