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A Beginner’s Guide To Exchange-based Tokens

For quite a while now, there have been such things as cryptocurrency exchange tokens. This concept started with exchanges’ attempt to increase liquidity, and the solution found is to create a native token. Through the tokens, holders earn additional value, including discounts on trading fees.

Despite the stalling performance of the entire crypto market in 2019, the year turned out to be a fruitful one for the majority of the exchange tokens, which recorded substantial gains for a few months consistently.

In this guide, we will look into the basics of crypto exchange tokens, the general usability of the token, and all-time leading exchange tokens in the crypto space, including their utility, price action, and overall usability.

The Basics of Crypto Exchange Tokens

Perhaps you are new to the crypto space, crypto exchanges are platforms that facilitate the exchanging, buying, and selling of cryptocurrencies. Based on their function, they are considered an integral stakeholder in the crypto space, and they also contribute to the ever-increasing blockchain ecosystem.

One of the qualities expected from a crypto exchange is a friendly user interface just like every other brokerage platform and traditional financial exchanges online. Another one is access to a variety of cryptocurrencies in the market. One thing to note is that the evolution of the blockchain industry has caused exchanges to shift grounds in order to adapt to the needs of their users in terms of platform features and other trading options.

Talking about Crypto Exchange tokens, they are digital assets that are native to a particular crypto exchange. In the next section, this guide will cover the 3 primary use cases of this category of tokens, and how the exchanges and their users mutually benefit from it.

The Primary Use Cases of Cryptocurrency Exchange Tokens

1. Enhanced Liquidity

In the crypto space, liquidity speaks of the ease of conversion of assets which causes a substantial impact on the market price. It can also be referred to as the availability of trading activities in the financial market. To put it in better perspective, the more liquidity in the market, the smoother the operation of the market will be. And the more liquidity attached to an asset, the more it can be exchanged easily without any substantial price impact. This phenomenon is called Slippage in the crypto space.

Crypto exchanges use their native token to incentivize users for every trading activity executed on their exchange, hence bringing more liquidity to the crypto market through them. One of the models used for this is to offer the native tokens based on the trading volume of each user. Another one is to initiate a staking program.

2. Multi-Party Trust

Depending on the type of cryptocurrency offered by the exchange, it can be used to establish trust with the users of the exchange alongside market regulators. For instance, offering stablecoins pegged to the U.S. Dollar combines the price stability and the creditworthiness of the U.S. Dollar, the protections of the regulatory bodies in the U.S., and the technological advantages of cryptocurrency.

3. Fees Discount

When any user is executing an order, crypto exchanges do charge a marginal fee in order to facilitate their orders, and this also includes decentralized exchanges run by communities.

However, in order to establish customer loyalty and incentivize trades, exchanges offer discounts on the trading fee to those who use the native token. Some exchanges have discounts in tiers and sometimes it can be based on how many of the native tokens you are holding in your account wallet. Either of these approaches gives users incentives for interacting with the native token of the ecosystem while it also increases the demand for the token irrespective of the nature of the exchange; centralized or decentralized.

4. Governance

Something to note is that not all exchange native tokens are designed to give users some sort of benefit. Some exchanges (especially the decentralized exchanges) designed their native tokens to serve as a mechanism of governance for the future development of the exchange. Those kinds of tokens give holders some exclusive rights and voting privileges.

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This use case is not common with centralized exchanges, but because of the use case, tokens that are designed to serve this purpose solely are called governance tokens which are common with decentralized tokens.

Examples of Crypto Exchange tokens

Despite the benefits attached to exchanging native tokens both on the side of the users and the exchange itself, not all reputable crypto exchanges own a native token. Some do not see any need for it because it is not in alignment with their user needs and strategic focus.

In this section, this guide will cover the examples of exchange tokens available in the crypto space, and subsequent sections will cover how you can get them.

1. Binance Coin (BNB)

The jumpstart earned by the Binance coin (BNB) is not unexpectedly the native token of the biggest crypto exchange in the world based on trading volume – Binance. Also, BNB is undoubtedly the most popular of all the exchange tokens in the crypto space.

On multiple occasions, the CEO of Binance, Changpeng Zhao (CZ), made it clear that the exchange plans to push Binance Coin with as many utilities as they can. Basically, the main use case and function of the Binance Coin is the reduction of trading fees on the exchange. This means that holders and loyal customers on the platform can earn various discounts if they decided to settle their trading fees with the Binance coin.

In addition, the coin is the only channel for people who want to participate in the fundraising events organized by the Binance Launchpad. Unless in some cases with exceptions, people who want to participate in the initial exchange offerings (IEO) hosted on the platform will have to use only BNB to purchase the sold tokens in a bid to create a substantial demand for the native token of the exchange.

In 2020, Binance Launchpad created a number of successful token sales on their platform including Fetch.Ai, Celer Network, and BitTorrent which has had a huge impact on the demand for BNB. Also, that year, Binance initiated a new program called lottery draws which gives people the right to participate in the upcoming IEOs on the launchpads.

Recent IEOs Hosted on Binance Launchpad

The following are the recent most successful initial exchange offerings hosted on the Binance Launchpad in recent time: Polygon (MATIC) Network, Cartesi, WazirX, Sandbox, Band protocol, Celer Network, and Kava.

2. Huobi Token (HT)

Looking into the list of exchanges based on the trading volume, Huobi is one of the exchanges on top of the list. According to the data published on CoinMarketCap, the trading volume of Huobi on daily basis is about $3 billion as of the time of this writing. The crypto exchange has been in existence since 2013, and it has since become a trusted exchange globally. As a matter of fact, at its inception, the exchange was reported to be the leading crypto trading platform in China before the eventual ban placed on digital assets in the region. Also, various VCs have expressed their trust in the platform by investing in it, including Sequoia Capital.

Back in 2020, the crypto exchange platform announced that it will be launching its stablecoin called HUSD alongside its native cryptocurrency called Huobi Token.

The establishment of the Huobi token (HT) comes with a few exciting use cases – one of which is the reduction in trading fees for users and holders on the platform as it is with the Binance coin (BNB). In addition, to be a recognized OTC trader on the Huobi platform, the recognized token for security deposit is the Huobi token. Also, when it comes to deciding what tokens or coins to list on the Huobi platform, only those holding the Huobi token can participate in the voting exercise.

Also, Huobi announced the establishment of a blockchain project similar to the Binance Launchpad called Huobi Prime. However, unlike the Binance launchpad, Huobi Prime required that investors interested in the service of the platform should hold nothing less than 500 HT on an average for 30 days before the commencement of the fundraising event. The idea behind this move is to incentivize Huobi token holding further.

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The Huobi Prime platform recorded its first at the first-ever token sale it organized for a project called TOP network. In just seconds, the project reached its designated hard cap. Though Huobi has not implemented its requirement of 500 HT minimum holding by then, the success further increases the trust of investors in the platform.

3. KuCoin Shares (KCS)

KuCoin rose to stardom in 2018, and one can say the reason it gained significant traction is that it was listing cryptocurrencies with small market cap and are less known. As of then, no exchange is willing to give those projects a chance, but KuCoin took the risk and got a reward for it.

Currently, KuCoin can boast about $2 billion as its daily trading volume, according to data on CoinMarketCap.

After a while, KuCoin launched its native cryptocurrency called KuCoin Shares (KCS), which according to the name involves asset allocation. The exchange distributes 50 percent of the proceedings from its daily trading fees to people holding the KCS token. You can consider it as a scheme for dividend payout for the loyal users of the exchange.

Another interesting thing is that KuCoin also join the IEO bandwagon by launching a blockchain project launching platform called KuCoin Spotlight, which is similar in operation to that of Binance and Huobi. The first project facilitated on the platform is MultiVAC.

4. OKEx Token (OKB)

Following the path of others, OKEx (another leading crypto exchange platform) launched its native token called OKB. This token is the utility token issued by the OK Blockchain Foundation. One of the different things about this token is that there were no public fundraising events or Initial Coin Offering (ICO) for it.

The OKEx token is a utility token built with ERC-20 compatibility. However, in the nearest future, OKEx has announced that the token will be moved to its public blockchain called OKChain – which is under development.

Another thing about the OKB token is that the OKEx exchange launched a system of token sharing that distribute about 60% of the entire OKB token supply to the users in exchange for free. Other features of the OKB token are the contribution to the increase in the operational efficiency of the ecosystem as well as helping users to eliminate transaction barriers.

Another thing to consider about the token is that investors have about 500,000 OKB tokens locked away in escrow in an attempt to endorse listing candidates and get to review them on the exchange, which can be considered the nice usability of the token.

Also, just like every other exchange mentioned so far in the guide (Binance and Huobi), OKEx has initiated the launching of its fundraising platform for the upcoming blockchain platform called OKEx Jumpstart, and the first project to be promoted on the platform will be BlockCloud.

5. Bibox Token (BIX)

Even though Bibox cannot be listed among the most popular crypto exchanges based on trading volume, it can be considered as an exchange that is focusing and has mastered the Asian market. The exchange began to gain traction in 2018 when it started listing some of the popular tokens targeting the Asian market. The exchange turned out to be one of the most substantial markets for the DAI stablecoin.

Alongside most other crypto exchanges, the platform has its own native cryptocurrency called Bibox Token with the ticker BIX. The token comes with a few use cases, and one of them as will be expected is the reduction in trading fees for users. In addition to the reduction in trading fees, the token gives 20% dividends to users based on the total net profit of the Bibox exchange.

Like every other exchange considered in this guide, Bibox exchange recently announced the launching of its fundraising platform for upcoming blockchain projects called Bibox Orbit.

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6. BitMax Token (BTMX)

Perhaps BitMax might not be on the list of digital assets exchanges you know, but consider that as of 2020, the daily trading volume of the token is $56 million, and it is ranked 47th on the list of crypto exchanges based on trading volume.

The native token launched by the BitMax exchange is called BitMax Token, and it has the ticker BTMX. According to the whitepaper of the project, the token will not represent shareholding, right, participation, interest, or right of the exchange in any way. Also, in the document, it was captured that holders are not entitled to any revenue, dividend, profits, fees, or return on investments.

Putting this into consideration, the basic idea behind the creation of the BitMax token is to serve as a unit of settlement and exchange between users and other participants interested in the BitMax ecosystem.

7. COSS Token

COSS Token is a native token to a Singapore-based exchange, COSS. The main idea behind the exchange is to bring all trading functionalities under a single ecosystem. As of 2020, the daily trading volume of the exchange is around $10 million, and that was when it began to gain recognition in the crypto space.

The exchange token, the COSS token is designed to distribute a certain amount of the trading fees generated by the platform to the token holders. Also, COSS followed the popular model of using the token to grant users a discount on the fees charged in every trade executed in the exchange.

How to Get Crypto Exchange Tokens

Most exchange tokens are distributed initially to users through what is called Initial Exchange Offering (IEO), which is a kind of Initial Coin Offering (IEO). Through this method of acquisition, users can get the token at the minimum possible price before the demand increase and the price increases.

Apart from IEOs, some other crypto exchanges can distribute their tokens initially or occasionally through airdrops. Airdrop is when project creators send their tokens directly to users’ wallets for free or in exchange for simple promotional tasks. For every token acquired either through IEOs or airdrop channels, they can be traded and exchanged like any other token provided that the token or project has an established market with liquidity. However, users must understand that not all exchange tokens are compatible with external wallets, therefore, users are advised to make their research about each exchange token to be sure that they are compatible with external wallets. Transferring tokens to incompatible wallets can result in the loss of assets.

Conclusion

This guide has been comprehensive enough to demystify the concept of crypto exchange tokens, but before you participate in it, you are advised to DYOR – Do Your Own Research. Also, this guide is just educational content, it is not in any way financial advice. Any financial decision made on account of the content of this guide is solely your responsibility.


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Mubashar Nawaz (United Arab Emirates)

Mubashar Nawaz is an experienced crypto writer working for Tokenhell. Having passion for writing, he covers news articles from blockchain to cryptocurrency.

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