Exchanges act as a gateway to the world of crypto trading. They offer a one-stop platform for traders to buy, sell and exchange cryptocurrencies. In return for their services, crypto exchanges generally charge a fee for every transaction.
However, as the industry grew, crypto exchanges found the need to expand their product offerings. Several exchanges also felt the need to raise additional funding to ensure the smooth functioning and constant upgradation of the platform. This is how the concept of exchange tokens came into being.
What are exchange tokens
Exchange tokens are digital assets issued by crypto exchanges. The primary use of exchange tokens is to raise funding for the platform. This, in turn, helps the exchange to maintain and improve its infrastructure. However, exchange tokens also provide plenty of utility to users, giving them access to voting rights, discounted transaction fees, exclusive coin offerings, and more.
The utility of exchange coins
Exchange coins are a type of utility token, which means that they have a specific use case or purpose within their exchange’s ecosystem. They are most commonly used to pay for transaction, listing, withdrawal or deposit fees. Exchanges generally offer extra discounts or rewards to users that pay for different fees within the ecosystem using their exchange tokens.
Many exchanges start as centralised entities; this allows them to develop the platform effectively. However, once the platform grows, it can move towards decentralisation. This can be done by providing the token holders with voting rights and entrusting them with the development of the exchange. Exchanges are also known to use the sale of exchange tokens to fund giveaways and contests on the platform.
Exchange tokens can also be used as a base market. They can be paired up with other cryptocurrencies to create liquidity pools. This allows holders to trade their exchange tokens for other cryptocurrencies without the risk of sudden price changes, known as slippage.
Advantages of holding exchange tokens
Token holders can benefit from preferential treatment and added benefits on the exchange they have been issued. The benefits can include free consultations, reduced fees and more accessible customer service.
But many people hold exchange coins for their governance utility. Being able to participate in the development of a crypto exchange and influence its future is highly advantageous. Lastly, holders of exchange tokens can also avail of discounts ranging from 1 to 50 percent on their transaction fees.
Exchange tokens and the cryptocurrency market
Exchange tokens are a significant part of the crypto industry, with a sector dominance of nearly 6 percent and a market capitalisation of roughly $116 billion. Binance is the biggest cryptocurrency exchange globally. Its exchange token, BNB, is the fourth biggest cryptocurrency by market cap and price action. It has a global market cap of almost $69 billion.
How to get exchange coins
You can buy these tokens directly from the exchange, just like you would purchase any other cryptocurrency. Most exchanges also offer these tokens during their launch as part of the Initial Exchange Offering (IEO). In some cases, exchanges can also provide these tokens through an airdrop, which is a free giveaway that helps the platform promote its coin.
(Edited by : Jomy Jos Pullokaran)
