Exchange Tokens
Basics
- From CoinDesk (30-1-2020), which put out a quite negative report on Exchange Tokens as an investment in 2019, saying they all underperformed against BTC, which is easy to say, since everything did in 2019.
"Exchange tokens," as they are called, offer holders discounts on trading fees and other benefits. This doesn’t make them anything like equity claims on exchange revenue, which several analysts have pointed out, no matter what buyback mechanisms are employed. It does make them much like the "utility tokens" issued in the initial coin offering boom of 2017 and 2018 - or like air miles - and some investors in these tokens embrace that narrative (Multicoin Capital).
Unlike air miles, exchange tokens trade freely on a variety of venues. As such it’s surprising that, despite the success of their issuers, the tokens themselves have not been more successful as investments. The table below shows the one-, three-, six-, nine- and 12-month returns of Binance's BNB, Huobi's HT, Bitfinex's LEO and OKEx's OKB, the four exchange tokens that make up the exchange token index provided by FTX, a derivatives exchange operator, as of Jan. 28 (data via Nomics).
The benefits to traders, however, can be significant. For users trading in these volumes,top-tier BNB holdings provide fee discounts that would save them about $720,000 each month, off the standard trading fees - more, if these traders pay the fees themselves in the Binance token. They also provide access to “initial exchange offerings” (IEOs), a new asset issuance operated by the exchange.
As such, BNB and other exchange tokens might be expected to serve as indicators as to the relative success of the issuing exchanges. After all, if an open market for air miles existed, you might expect one airline’s miles to trade at a premium to another’s, depending on flyers’ perceptions of their service. At one time, that was true of exchange tokens, but over the course of the past year it's become less and less so. For most of these exchange tokens, the correlation between price and the issuing exchanges' reported volume is weakening over time. (Unlike the exchanges in the revenue chart, not all these exchange token issuers' reported volume is rated trustworthy.)"
