In 2020 the competition among cryptocurrency exchanges is fierce. Providing a functional and safe platform for trading is no longer enough. The new generation exchanges are holistic ecosystems with native exchange tokens.
Native exchange tokens help exchanges not only to lure new customers with affiliate program bonuses or to help retain customers with the commission fee reductions. Tokens become active market players in the cryptocurrency market by itself.
Among 10 top cryptocurrencies by market capitalization, Binance Coin, the native coin of the Binance platform, occupies the 8th place with the capitalization over $2.5 billion. Other tokens are yet to shine, providing early birds with the biggest potential profits.
How traders can use tokens to earn more on trading other cryptocurrencies? Is it wise to hole these tokens? Let’s dive in.
What is a native exchange token?
Native exchange token is a token issued as a utility token by a cryptocurrency exchange’s ecosystem. It means that the token provides users with access to the exchange’s features.
For the exchange, it is a functional element of the ecosystem and a tool for loyalty program management. It helps the exchange to shine among competitors and attract most users, while increasing the trading activity on the platform, and consequently, profits.
Unlike the loyalty program bonuses from the traditional retail world, the exchange-based tokens can be also used outside the exchange. Such tokens can be an asset by itself and traded as such.
If the exchange ecosystem is growing, the token price may increase over time. That provides traders with an additional opportunity to earn profits later.
Native exchange tokens as crypto assets to trade or hold
Cryptocurrency exchanges generate millions in profits. With the cryptocurrency adoption picking up amidst the global fiat money crisis, some experts suggest that exchange business is picking up too. In case the native exchange tokens are proven useful in a particular ecosystem, it’s price might grow over time and traders might find it interesting to invest in such tokens.
The general outlook proves this theory. Binance token (BNB) started below $1 in 2017 and is now trading around $16. OKE’x OKB token was barely reaching $2 in May 2019, now it’s price is over $5. Huobi’s HT has also doubled the price since its launch in 2018.
Yet, it is hardly a rule. For example, Bitfinex’s LEO has not really gained much in price, despite reaching over $1 billion in market capitalization. Moreover, the intuitive assumption that the token price might grow with the trading volume increase on a particular platform has proven to be wrong: according to market experts, the correlation between the token price and the exchange’s trading volume is becoming less and less strong.
Nevertheless, the market volatility always provides opportunities for savvy traders. Native exchange tokens are even more volatile than main cryptocurrency assets. News about a particular exchange’s vulnerability could significantly drop the price, that can later bounce back with the exchange showing some resistance against hackers’ attacks.
Holding such tokens might be more risky than trading, since cryptocurrency exchanges are centralized organizations. A rare expert could advise storing crypto assets on an exchange’s internal wallet, due the historic record of numerous hacks. On the other hand, new exchanges are becoming more and more professional, and therefore robust.
Luckily, native exchange tokens have at least two other use-cases for those who do not want to trade them.
Native exchange tokens for traders
First and foremost, native exchange tokens are designed to lure more traders and retain existing ones like any other loyalty program. Like miles from airline companies, they provide traders with some free ride offers, the most lucrative of which are trading fee commission discounts.
The largest crypto exchange Binance gives traders 25% discount for paying commission in their tokens, BNB. Huobi lets users with substantial HT assets runoff more than 50% of trading fees. Young crypto exchanges are even more generous. Nominex platform gives all users paying with the platform’s native token NMX the 50% discount for the first year of trading.
But the fun only starts there. Apart from special offers and additional discounts, invitations to token sales and other events, exchanges also introduce various entertaining opportunities to have fun earning money like Nominex’s tournaments, where players can win real money for trading in demo mode, without risking their assets.
True loyalty programs functionally go beyond the platform’s services. You can pay for your meal in miles collected from flying from by particular airlines. The same is true about some exchange’s coins. For example, Binance partnered with various companies, so BNB holders can pay with their coins for travel expenses, virtual gifts, freelancer’s work and even split expenses with friends after going to the restaurant.
Native exchange tokens for referral programs
Earning on inviting users to join a particular trading platform is another type of fun. On most exchanges, if you choose to receive bonuses in native token, the earning on every new sale is getting bigger. Some exchanges pay bonuses only in their native tokens.
Such affiliate programs differ in the remuneration size and the program structure. For example, BitFinex’s program offers bonuses up to 3 degrees of connection. Some platforms, like Nominex, are offering so-called binary tree structure programs, where the user receives bonuses for all new users invited by the user’s network, no matter how deep down the tree.
Usually the most benefits come from the members invited by other affiliates due to the so-called spillover effect. Therefore, Nominex-like structures with unlimited levels have more chances to provide a passive income in the long run.
Big exchanges are not interested in sharing profits indefinitely. That is why, for example, Binance provides bonuses only during one year and only by direct referrals.
What future holds?
No doubt that exchange tokens are becoming more and more fun for all types of users. Traders gain lower trading commissions, and therefore more profits. Holders receive access to special crypto events, like token sales and receive more bonuses in affiliate programs. After all, the competition is picking up and exchanges are giving back stronger than ever.
One can not guarantee that all native exchange tokens will rise in price, but some might. This fact gives additional opportunities to traders in terms of diversifying the portfolio. Since exchanges are the crucial element of the crypto world infrastructure, their utility tokens will hardly go extinct in the future.
Some tokens like BNB or Huobi Token have already a proven success record. New exchanges, like Nominex or Bitfinex, offer more fun ways to use the coins and bigger discounts and bonuses.