By Norah ODonnell
An exchange coin is a crypto issued by a cryptocurrency exchange to serve different utility functions within the exchange’s ecosystem. The coins, sometimes called exchange tokens, offer users various benefits including staking rewards, discounts on trading fees, and access to special features and services.
Users need to learn various vocabularies when describing a variety of cryptos. Native coins, governance tokens, utility tokens, altcoins, and stablecoins, among others. Nonetheless, one type of crypto that most users might not be familiar with is the ‘exchange coin.’
There is a fair bit of vocabulary knocking around when it comes to the description of various categories of cryptos. Utility tokens, native coins, stablecoins, governance tokens, and altcoins. Nonetheless, one form of crypto that you may not be familiar with is the ‘exchange coin.’
An exchange coin is a kind of crypto issued by a crypto exchange. The coins, sometimes referred to as exchange tokens, serve utility functions within the ecosystem of the issuing exchange.
For instance, most exchange coins offer users discounts on trading fees when used to pay for transactions on the exchange. BNB (BNB), for example, provides reduced trading fees on the Binance platform.
Another common utility is staking, where the users can stake their exchange coins to earn rewards, including extra coins or tokens, or participate in different exchange activities, like voting on new token listings.
Owning exchange coins mostly gives the users access to special features or services on the exchange, including premium customer support or participation in token sales known as initial exchange offerings (IEOs).
Some exchange coins are used for several other purposes, including collateral for loans, cross-platform transactions, or as a base trading pair for other cryptos, despite this being a rarer use case.
Exchange Tokens Versus Exchange Coins
While the terms ‘token’ and ‘coin’ are mostly used interchangeably, the truth is their exact use cases differ slightly.
Everything comes down to whether a crypto is the native coin of a blockchain or is powered upon it based on a preset token standard.
For example, BNB is the native crypto of the BNB Smart Chain, the blockchain that underpins the Binance exchange. As the exchange coin is native to the network and used to pay the gas fees, it must be perfectly classified as an ‘exchange coin.’
Then, there is the KuCoin Token (KCS), the exchange “coin” of the KuCoin exchange. As KCS is an ERC-20 token running on Ethereum, it should be correctly defined as an ‘exchange token.’
Later in a project’s life cycle, this project’s team might develop its blockchain and migrate its existing exchange token to the native network.
For instance, the Crypto.com exchange coin Cronos (CRO) started as an ERC-20 token on Ethereum. Nonetheless, in November 2021, the project moved the token to the Cronos blockchain, currently operating as a native coin.
It is a dichotomy existing within the crypto sector. For instance, Ethereum is a coin that operates as the native currency of the Ethereum network with which gas fees are paid, while Tether (USDT) is an Ethereum token that runs on the network as somewhat of a tenant.
Why Invest In Exchange Coins And Tokens?
Exchange coins are not digital gold, but they offer financial incentives and strategic benefits. The assets are essential to their platforms’ ecosystems, offering considerable demand-side support.
Trading Fee Discounts
Holders of an exchange coin mostly benefit from reduced trading fees on the exchange in question, which can be a considerable cost-saving measure for day traders. For example, BNB users enjoy discounted trading fees on the Binance platform, which directly translates into reduced transaction costs.
Also, the KuCoin Token and Huobi Token (HT) offer fee reductions on their respective exchanges, appealing to active traders looking to minimize their expenses.
Token Burn Mechanisms
Beyond the fee discounts, the tokens mostly play an integral role in token burn mechanisms, where some tokens are destroyed to reduce the overall supply. The deflationary tactic can boost the token’s scarcity and, theoretically, its value in the long term.
Binance, for instance, often conducts token burns for BNB, striving to boost its long-term monetary value. These mechanisms create possible appreciation in token value, offering a tangible return on investment for the holders.
Governance
Another notable aspect of exchange tokens is their role in governance. Most platforms allow the tokenholders to participate in governance decisions, voting on the proposals that can shape the future of the exchange.
The democratization of decision-making can empower the investors, offering them a voice in important matters including fee structures, protocol upgrades, and new listings. Uniswap’s (UNI) and Huobi Token are major examples of tokens where the holders can vote on considerable changes and influence the direction of this platform.
The participatory role aligns investors’ interests with the growth and development of the exchange and boosts a sense of community and shared purpose.
Yield Generation
Investing in exchange coins and tokens may also be a means to generate yield via staking and other DeFi activities. Most exchanges offer staking programs where the tokenholders can lock up their assets to support network security and operations in return for the staking rewards.
Notably, Aave (AAVE) and Synthetix (SNX) tokens can be staked to earn interest or extra tokens, creating a passive income stream. This ability to generate yield boosts the general value proposition of holding the tokens, enabling investors to earn returns beyond simple price appreciation.
Increasing Utility Of Exchange Coins And Tokens
Exchange coins such as OKB and BNB, mainly used within their respective platforms, are majorly getting accepted as payment methods, offering alternative options to traditional cryptos.
Exchange coins are not as common in the payments space as digital currencies like USDT and Bitcoin (BTC), but they have a place in the crypto ecosystem.
BNB, for instance, is mostly accepted beyond the Binance platform. Most Shopify merchants accept BNB payment via integration with crypto payment processors such as CoinPayments. Moreover, in various areas, Takeaway.com (part of Just Eat) accepts BNB for food deliveries.
Also, OKB is accepted by several merchants and services for payment purposes. It is mainly used to pay for services, goods, and travel bookings. Also, ecosystems like OKX, Binance, and Crypto.com offer Visa cards that let users spend their exchange coins and tokens at all merchants that accept Visa.
Nonetheless, most exchange tokens and coins are mainly utilized within their ecosystems and are not designed as a medium of exchange. BYT, for instance, is mostly designed to be utilized in the Bybit crypto ecosystem for trading fee discounts and platform-related activities.
On that note, GT is mostly utilized within the Gate.io platform for trading fee discounts, participation in governance, and token sales. The users can always exchange these tokens for other highly freely used currencies when paying for services and goods.