Exchange coin — is a type of digital asset issued by a cryptocurrency exchange to perform various utility functions within the exchange's ecosystem. These coins, sometimes called exchange tokens, provide users with benefits such as trading fee discounts, staking rewards, and access to special features or services.
There are many terms describing various categories of cryptocurrencies: native coins, utility tokens, governance tokens, stablecoins, altcoins, and so on. However, one category of cryptocurrencies you might not be familiar with is "exchange coin".
- What are exchange coins?
- Exchange tokens vs exchange coins: key differences
- Why invest in exchange coins and tokens?
- Popular exchange coins and tokens
- Expanding the use of exchange coins
What are exchange coins?
Exchange coin — is a type of cryptocurrency issued by a specific cryptocurrency exchange. These coins, sometimes called exchange tokens, perform practical actions within the ecosystem of the issuing platform.
For example, many exchange coins offer users trading fee discounts if used to pay for transactions on the exchange. BNB, for instance, provides reduced trading fees on the Binance platform.
Another common utility function is staking, where users can stake their exchange coins to receive rewards such as additional coins or tokens, or participate in various activities on the exchange, such as voting for new token listings.
Holding exchange coins often provides users with access to special features or services on the exchange, such as premium customer support or participation in token sales called Initial Exchange Offerings (IEO).
Some exchange coins are used for other purposes, such as providing loans, cross-platform transactions, or as a base trading pair for other cryptocurrencies, although this is a rarer use case.
Exchange tokens vs exchange coins: key differences
While the terms "token" and "coin" are often used interchangeably, their exact areas of application differ slightly.
It all comes down to whether the cryptocurrency is a native coin of the blockchain or built on it according to an established token standard.
For example, BNB is the native cryptocurrency of BNB Smart Chain, a blockchain that supports the Binance exchange. Since the exchange coin is native to the network and used to pay gas fees, it should be correctly classified as an "exchange coin".
On the other hand, there is the KuCoin Token (KCS), the "coin" of the KuCoin exchange. Since KCS is actually an ERC-20 token running on Ethereum, it should be correctly defined as an "exchange token".
Coin Token Validation Uses consensus mechanism for validation Relies on native coin's consensus mechanism Quantity One coin per blockchain Countless tokens per blockchain Type of Asset Native asset of the blockchain Application built on an existing blockchain
At a later stage in the project's lifecycle, the team may develop its own blockchain and transfer the existing exchange token to the native network. For example, the Cronos exchange coin (CRO) from Crypto.com started as an ERC-20 token on Ethereum. However, in November 2021, the project migrated the token to the Cronos blockchain, where it now serves as the native coin.
This is the dichotomy that exists in the crypto industry. For example, Ethereum — is a coin that serves as the native currency of the Ethereum network, used to pay gas fees, while Tether (USDT) — is an Ethereum token that operates on the network as a sort of tenant.
Having understood the key differences between coins and tokens, let's move on to the next question.
Why invest in exchange coins and tokens?
Exchange coins are not digital gold, but they offer both financial incentives and strategic advantages. These assets are an integral part of their platforms' ecosystems, providing significant support from demand.
Trading fee discounts
Holders of exchange coins often benefit from reduced trading fees on the respective exchanges, which can save significant money for day traders. For example, BNB users receive discounts on trading fees on the Binance platform, directly reducing transaction costs.
Similarly, tokens from Huobi (HT) and KuCoin (KCS) provide fee discounts on their exchanges, attracting active traders looking to minimize costs.
Token burning mechanisms
In addition to fee discounts, these tokens often participate in token burning mechanisms, where a portion of tokens is periodically destroyed to reduce the total supply. This deflationary tactic can increase token scarcity and, theoretically, their value over time.
For example, Binance regularly conducts BNB burns, aiming to enhance its long-term monetary value. Such mechanisms create potential for token price growth, providing tangible profits for holders.
Governance
Another attractive aspect of exchange tokens is their governance role. Many platforms allow token holders to participate in governance decisions, voting on proposals that can determine the exchange's future.
This democratization of decision-making can give investors a voice in important issues such as protocol upgrades, fee structures, and new listings. Examples of such tokens include Huobi Token and Uniswap (UNI), where holders can vote on significant changes and influence the platform's direction.
This participation role not only aligns investors' interests with the exchange's growth and development but also fosters a sense of community and shared goals.
Income generation
Investing in exchange coins and tokens can also be a way to generate income through staking and other DeFi activities. Many exchanges offer staking programs where token holders can lock their assets to support network security and operations in exchange for staking rewards.
For example, tokens from Aave (AAVE) and Synthetix (SNX) can be staked to earn interest or additional tokens, providing passive income. This income generation capability enhances the overall value of holding these tokens, allowing investors to profit beyond simple price appreciation.
Popular exchange coins and tokens
While BNB remains the leading exchange coin due to its extensive use on Binance, other coins like BYT from Bybit, GateToken, and OKB are gaining popularity, offering trading fee discounts, exclusive investment opportunities, and governance roles, signaling their potential for future growth.
The combination of trading fee discounts, participation in exclusive investment opportunities, integration into various financial services, and growing acceptance as a payment method creates a comprehensive value proposition.
For investors looking for a well-rounded and potentially profitable digital asset, BNB represents a promising option with a solid foundation for future growth. However, it is not the only exchange coin on the market.
- Bybit Token (BYT)
It is the native ERC-20 token of the Bybit exchange, and while it still lags behind Binance, it is one of the fastest-growing exchanges. Its rapid growth and prominence are attributed to its user-friendly interface, robust security measures, and innovative trading products. BYT holders receive reduced trading fees, significantly cutting costs for high-frequency traders. The platform also hosts promotions and trading contests, offering additional rewards and bonuses for BYT holders. As Bybit develops, BYT will play a key role in governance, allowing holders to vote on key decisions and protocol updates, fostering community involvement.
- GateToken (GT)
This is the native ERC-20 token of the Gate.io exchange, known for its numerous trading pairs and innovative products. GT offers trading fee discounts, making it attractive to active traders. Holders gain access to exclusive token sales, providing early investment opportunities with potentially high returns. GT also allows participation in platform governance, giving the ability to vote on key decisions.
- OKB, the native coin of OKX
Initially issued as an ERC-20 token on the Ethereum blockchain, it has since migrated to the OKT Chain, OKX's own blockchain. Holders of OKB receive significant trading fee discounts, and uniquely, OKB is used to participate in token sales on the OKX Jumpstart platform, providing early access to new projects and investment opportunities.
Like Binance, OKX periodically conducts token burns to reduce the total supply of OKB, which can increase token scarcity and potentially its value over time. OKX's strategic initiatives to expand its global presence and improve its products suggest user base growth and increased adoption of OKB.
Expanding the use of exchange coins
Exchange coins such as BNB and OKB, initially used only within their platforms, are increasingly accepted as payment methods, providing alternative options to traditional cryptocurrencies.
Exchange coins are not as widespread in the payment ecosystem as digital currencies like Bitcoin (BTC) and USDT, but that doesn't mean they have no place.
For example, BNB is widely accepted outside the Binance platform. Many merchants on Shopify accept BNB as payment through integration with cryptocurrency payment processors like CoinPayments. Additionally, in some regions, Takeaway.com (part of Just Eat) accepts BNB for food delivery.
Similarly, OKB is accepted by a number of merchants and services for payment. It is widely used for purchasing goods, services, and even booking travel. Additionally, ecosystems such as Binance, OKX, and Crypto.com offer Visa cards that allow users to spend their exchange coins and tokens at any store that accepts Visa.
However, many exchange tokens and coins are primarily used within their ecosystems and are not intended as a medium of exchange. BYT, for example, is mainly intended for use within the Bybit crypto ecosystem for trading fee discounts and platform-related activities.
Similarly, GT is primarily used on the Gate.io platform for trading fee discounts, token sales participation, and governance. Users can always exchange tokens for other, more widely used currencies when paying for goods and services.
