Exchange tokens and their role in the investment portfolio

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Exchange tokens and their role in the investment portfolio

The creation and implementation of cryptocurrency exchange tokens has become a noticeable trend. Today, 16 reputable trading platforms use their own coins. Owners of these tokens receive additional privileges and opportunities within their own token ecosystem.

This strategy helps promote both the asset itself and its native ecosystem as a whole. However, it is worth noting. that Coinbase and Kraken do not have their own coins. Both platforms are located in the USA and do not want to issue them because the regulator may regard them as securities.

Why do exchanges need their own currency?

Exchange tokens began appearing in the summer of 2017 and are seen as utility tokens that provide holders with specific products, services or discounts. These tokens can be used to reward market makers who provide liquidity on the trading floor.

Binance was the first exchange to successfully implement this model. As a result, the BNB token entered the TOP 10 most capitalized cryptocurrencies. Now BNB can be exchanged not only on the exchange itself, but also on other major cryptocurrency trading platforms. However, other coins also go beyond the boundaries of their ecosystems, in particular UNI, HT, KSS. However, swaps of such coins with altcoins, following the example of BTC to XMR exchange operations, are available only on their native platforms

The main purpose of such coins includes reducing trading fees or providing clients with certain privileges, such as participation in management. The reward model for token holders may vary slightly across platforms, but the general trend is to make token ownership attractive and profitable for users.

Pricing factors

In addition to general market trends, the price of assets in this class depends on various models for stimulating growth or maintaining stability. Some of the main approaches include:

  • Burning. Destruction of tokens for a certain percentage of the exchange’s profit. Information about burning is usually available on exchange websites, and this process can account for 20% to 30% of profits.
  • Dividends. Some exchanges, such as Bibox and Kucoin, use a dividend model. If the volume of payments exceeds the level of passive income, then the price is supported by dividends.
  • Transaction mining, which increases the circulation of tokens, which can increase their value.
  • Initial Exchange Offering. Participation in the IEO requires a temporary freeze of assets, which temporarily increases the capitalization of the coin.
  • Providing discounts on trading fees can be an incentive for both the exchange and users.
  • Voting and management functions. Providing privileges to token holders, such as voting, can influence the price increase.

With all the variety of ways to regulate pricing and privileges for holders, all exchange tokens without exception entitle them to commission discounts.

The role of exchange tokens in an investment portfolio

Exchange tokens are an excellent tool for diversifying your cryptocurrency portfolio. During market corrections, they provide an opportunity to make money due to their low correlation with major cryptocurrencies. During periods of decline in Bitcoin prices, the value of assets of this class, on the contrary, may increase.

Their high volatility makes them suitable for active trading, including the use of leveraged margin platforms. Such assets are also of interest for long-term storage, since the tokenomics model assumes an increase in their value in the future. Moreover, you can always perform a quick UNI to BNB swap in the event of a sharp change in the market situation on LetsExchange.

They allow you to save on trading commissions and serve as a means of diversifying risks during periods of market decline. The main advantage of exchange tokens as an investment instrument is the presence of an already working project. From an investor’s point of view, this is a much better and less risky option than investing in new projects that only promise results. On the other hand, the fate of each coin directly depends on the state of affairs in its native ecosystem.

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