Cryptocurrency exchange tokens have already made huge profits, but does this change their original use case and become a good investment for fraudsters?
In recent months, as the broader cryptocurrency market developed, the value of local exchange tokens has skyrocketed, changing the narrative for which these tokens were originally intended.
Bitcoin (BTC), Ethereum (ETH) and other cryptocurrencies have grown exponentially in the last six months. Part of the reason is that major institutional investors finally entered the market in a significant way.
Grayscale Investments, MicroStrategy and Tesla are well-known personalities that have primarily acquired Bitcoin and other cryptocurrencies, setting all-time highs.
This has a knock-on effect on the various tokens that support cryptocurrency transactions, or acts as fuel for the basic blockchain just like the natural gas fee used by Ethereum to process transactions.
Exchanges that use their own tokens to power their ecosystem have also seen the value of their native cryptocurrency increase. The two main examples in this regard are Binance's native Binance Coin (BNB) token and the UNI token from the decentralized financial platform Uniswap and the OKB token from the OKEx exchange.
BNB's value increased from $38 per token on Jan. 1 to a record $335 on Feb. 19. Similarly, UNI increased from $4.90 per token on Jan. 1 to just over $35 on March 22, which is also a record. At the same time, since the beginning of this year, OKB's market value has tripled from about 7x at about $2 to over $21 on Feb. 22.
However, before we delve into the price appreciation of these cryptocurrencies, let's review the basics of token exchange.
What is an exchange token?
The cryptocurrency exchange token provides a variety of important functions for the platform on which it runs.
For one, they can increase liquidity and trading activity. The liquidity of an exchange refers to the ability of a token to convert into another cryptocurrency or fiat currency.
Native token exchanges can stimulate increased exchange liquidity by distributing rewards to trading volume or by distributing rewards to users who use tokens.
Exchange tokens are also used to provide discounted rates to merchants and users. Generally, this means that users receive discounts when they use cryptocurrencies to pay fees on centralized or decentralized exchanges.
Some cryptocurrencies power exchanges by allowing users to participate in governance mechanisms (such as voting) or provide exclusive benefits to holders.
Take BNB as an example. It is the transaction medium on Binance Chain, and is also used to pay transaction fees for exchanges.
Have exchange tokens become a good investment?
Although they have multiple uses on their respective platforms, their rapid growth in value across the ecosystem raises the question of whether exchange tokens are now a viable investment for users.
The nature of a given token and its role in the exchange ecosystem will also affect its value and appreciation potential over time.
Todd Crosland, founder and CEO of CoinZoom, a cryptocurrency exchange, said, From exchanging tokens only in exchange for discounted transaction fees and other benefits, to tangible value, there has been a certain degree of development.
As Crosland explained, additional benefits also increase the value of various tokens through rewards, discounts and other incentives.
n the case of BNB, Leong emphasized the fact that with the launch of Binance Chain, exchange tokens have also become utility tokens.
Basically, this converts BNB tokens into Ethereum ETH tokens, which are used to pay for fuel.
As Leong emphasized, although there seem to be more and more people in the market who believe that pending exchange tokens can be viable long-term investments, these tokens are also subject to the notorious volatility of Bitcoin and other well-known cryptocurrencies.
A Binance spokesperson described the exchange's belief that as more and more applications and projects begin to run on the Binance smart chain, the value of BNB will continue to grow: use cases for BNB have expanded to many platforms in the crypto ecosystem and hundreds of applications for the project.
As the cryptocurrency market continues to maintain its gains in recent months, the token exchange also allows users to maintain value on these platforms, as evidenced by its market value.
BNB's market value is approaching $40 billion, which is nearly equal to the total market value of the Tether token (USDT).