An exchange token is an asset issued by a cryptocurrency exchange platform. The token often gives users access to trading fee discounts, voting rights, and other perks unavailable to non-token holders. Investors may also hold an exchange token for speculative purposes, as the token’s market value may reflect the performance of the underlying business.
With some of the largest crypto exchanges (centralized and decentralized) having a token, it might be difficult for new investors to understand how it all works.
This article provides a breakdown of how an exchange token works in crypto. Readers will also learn about the most popular exchange tokens and where to buy these assets.
Here is a detailed outline to ease your navigation through the article:
What is an Exchange Token?
An exchange token is a digital asset issued and managed by a cryptocurrency exchange.
Crypto exchanges are platforms that facilitate the trading, storage, and swapping of cryptocurrencies. They can be categorized into centralized exchanges and decentralized exchanges.
Centralized exchanges are privately owned companies that provide a platform for trading cryptocurrencies. These companies serve as third parties between traders in the crypto market, with the most popular examples including Binance, KuCoin, Huobi, OKX, Crypto.Com, etc.
Decentralized exchanges, on the other hand, are platforms that enable trading through smart contracts. They do not require a third party but instead use cryptographic code to enable users to trade in a trustless fashion. Examples include Uniswap, SushiSwap, DODO, PancakeSwap, dYdX, etc.
Note, though, that not all cryptocurrency exchanges have exchange tokens. Some examples of such platforms include Coinbase and Kraken.
How Exchanges Issue Native Tokens
An exchange may issue its tokens using different methods. A common approach is through a crypto airdrop in which the platform releases portions of its tokens to users based on certain criteria. Some exchange tokens, including BitMEX (BMEX) and Uniswap (UNI), were launched through airdrops.
Exchanges may also release their tokens through a private or public sale. Under this approach, early investors can purchase the asset at a discount before it is listed on a public trading platform.
The method used to distribute an exchange token does not detract from the fact that it benefits both parties. Exchange token holders receive certain benefits such as trading fee discounts, early access to token sales on the exchange, and other benefits.
Crypto exchanges also benefit from issuing exchange tokens as they incentivize regular usage of their platform. The issuing company also profits from the token through the portion allocated to the entity and its team members. As the token’s price increases, the amount the company holds increases too. This way, the accumulated tokens can assist with its liquidity in times of financial difficulty.
Examples of Exchange Tokens
There are several exchange tokens existing today. However, this section discusses three popular ones; Binance Coin (BNB), Uniswap (UNI), and Huobi (HT).
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Binance Coin (BNB)
The Binance coin (BNB) is the native token for the Binance exchange platform. BNB is currently the third-largest cryptocurrency trailing only Bitcoin and Ethereum. However, this has not always been the case.
Binance released its BNB token in 2017 during an initial coin offering (ICO), with a fixed supply of 200 million tokens. Early investors purchased the token at a mere $0.15 price which helped the company raise $15 million to launch its business. (Read more about Binance’s coin history in our dedicated article).
At the time of its launch, the BNB token did not have its blockchain. It lived on the Ethereum network until 2019, when Binance launched its first blockchain and migrated the asset.
As a native asset for the Binance exchange, users get a discount on trading fees when they pay with BNB. Other BNB use cases include unlocking access to new Binance token sales and paying fees on the BNB blockchain. At the time of writing, the BNB token traded around $300, with the Binance exchange reporting 120 million users.
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Uniswap (UNI)
Launched in 2018, Uniswap is a decentralized cryptocurrency exchange platform. The Uniswap protocol facilitates the trading of crypto assets through smart contracts.
For starters, smart contracts are lines of code written by developers and published to a blockchain to enable several functions. For instance, they may enable the easy transfer of assets on a network without the need for a third party.
Uniswap Labs, the entity that maintains Uniswap, released the UNI token via an airdrop in 2020. UNI serves both as an exchange token and a governance token. This implies that UNI token holders can vote on proposals to drive the protocol’s future. They are also entitled to one-sixth of the trading fees users pay for trading on Uniswap. UNI trades at $5.5 at the time of writing and ranks within the top 20 cryptocurrencies by market capitalization.
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Huobi (HT)
Huobi is a centralized cryptocurrency exchange that launched in 2013. However, Huobi launched its native token five years later, in 2018.
Huobi released the Huobi Token (HT) on the Ethereum blockchain. It has a limited total supply of 500 million. HT serves as a utility asset for the exchange, with holders receiving discounts on trading fees and rewards from other tokens.
At the time of writing, HT trades at $6.8.
Benefits of Buying Exchange Tokens
There are several benefits of buying exchange tokens. Here are some prominent benefits of buying exchange tokens:
- Reduced Trading Fees
A well-known benefit of buying exchange tokens is the reduction of trading fees. By buying and holding an exchange token, a user usually enjoys a near-zero or discounted fee when trading on the issuing platform
Exchanges such as Binance and Huobi feature a discounted trading fee for holders of their native tokens. Holders of some exchange tokens also receive early access to certain services offered on the platform.
- Governance Rights
Buying an exchange token confers governance rights on a user. This allows the holder to vote on proposals that affect the protocol’s future. Some of these proposals include revisions to the smart contracts existing in the protocol or fee distribution model.
Using an exchange token for voting is a prominent feature in blockchain projects that operate as decentralized autonomous organizations (DAOs). Usually, the more tokens a user holds, the more voting power they possess.
- Speculation
An exchange token provides a channel for users to speculate on the growth of the underlying business. This is possible because, unlike platforms like Coinbase, which have publicly traded stock, most exchanges with tokens are privately held firms.
Investors who buy an exchange token line themselves for profit or losses depending on the company’s results. Some exchanges like Binance and Huobi periodically buy back tokens with a portion of business revenue, thus providing an opportunity for long-term investors.
How to Buy Exchange Tokens?
There are many ways to buy an exchange token, with different platforms supporting various options. Here, we will use a simple case study – buying BNB on the Binance app.
To purchase BNB from the Binance app using a credit or debit card, follow these steps:
- Create a verified account with Binance. This involves undergoing a know-your-customer (KYC) process on the exchange.
- Click on the box labeled “Buy with USD,” or choose another currency.
- Choose Credit/Debit Card as your preferred payment method from the list of options.
- Select the crypto you want to buy. In this case, we are buying BNB.
- Insert the amount of BNB you want to buy and proceed.
- Insert the bank details for your credit or debit card and confirm.
- On the Confirm Order” page, make sure to crosscheck the transaction details. Select “Confirm” once you’re done.
- You will receive your purchased BNB in your Spot Wallet on the Binance app.
Where to Buy Exchange Tokens?
The easiest place to buy exchange tokens is on the platform that launched them. For example, as described in the previous heading, you can easily buy BNB on Binance. The same goes for Huobi’s HT, FTX’s FTT, and WazirX’s WRX.
Meanwhile, you can also trade these tokens on other crypto exchanges. This means you can buy BNB on Huobi, WazirX, and any other exchange that lists the assets. The same thing applies to every other exchange token.
How to Get a Token Listed on an Exchange?
The process involved in getting your tokens listed on centralized exchanges varies from exchange to exchange. This article will discuss how to get tokens listed on Binance.
Since Binance commands the largest number of users on its exchange compared to other centralized exchanges, several crypto projects long to have their tokens listed on the platform. Binance has published step-by-step guidelines for any project to get its crypto tokens listed. It also mentioned the do’s and don’ts by exchanges as they await approval from the Binance team.
The token issuer must fill out the online application form on Binance. Within the form, they must include all the information required by Binance. The project founder must also fill out a form to aid quick communication when any issues arise.
Once submitted, the project must wait for feedback from Binance on whether or not it will list the asset. During the waiting period, Binance conducts independent research on the project covering factors such as team credibility, tokenomics, and user growth. This independent study helps Binance make a decision on a potential listing, after which the exchange may communicate its decision to the team.
Other exchanges, like Coinbase, Kraken, Crypto.com, KuCoin, etc., may follow different listing procedures. However, the ultimate goal for these platforms is to generate revenue from listing or trading fees; while letting users trade fairly reputable projects.
Conclusion
This article extensively discussed the answer to the question: “What is an exchange token?” Readers learned the benefits of investing in exchange tokens and where to buy them. Exchange tokens look set to remain a constant feature in the cryptocurrency space and may take on even greater use cases as the industry matures.
