Explained: What Are Exchange Tokens?

Exchanges act as a gateway to the world of cryptocurrency trading. They offer a comprehensive platform for traders to buy, sell and trade cryptocurrencies. In exchange for their services, cryptocurrency exchanges generally charge a fee for each transaction.

However, as the industry grew, crypto exchanges found the need to expand their product offerings. Several exchanges also felt the need to raise additional funds to ensure the smooth running and constant updating of the platform. This is how the concept of exchange tokens came about.

What are exchange tokens?

Exchange tokens are digital assets issued by crypto exchanges. The main use of the trading tokens is to raise funds for the platform. This, in turn, helps the exchange maintain and improve its infrastructure. However, trading tokens also provide a lot of utility to users, giving them access to voting rights, discounted transaction fees, exclusive coin offerings, and more.

The usefulness of exchange currencies

Exchange coins are a type of utility token, meaning they have a specific use case or purpose within the ecosystem of their exchange. They are most commonly used to pay transaction, listing, withdrawal or deposit fees. Exchanges usually offer additional discounts or rewards to users who pay different fees within the ecosystem using their exchange tokens.

Many exchanges start out as centralized entities; this allows them to develop the platform effectively. However, once the platform grows, it can move towards decentralization. This can be done by providing token holders with voting rights and entrusting them with the development of the exchange. Exchanges have also been known to use the sale of exchange tokens to fund giveaways and contests on the platform.

Exchange tokens can also be used as a base market. They can be combined with other cryptocurrencies to create liquidity pools. This allows holders to exchange their trading tokens for other cryptocurrencies without the risk of sudden price changes, known as slippage.

Advantages of having exchange tokens

Token holders can benefit from preferential treatment and additional benefits on the exchange issued to them. Benefits can include free consultations, reduced fees, and more accessible customer service.

But many people have exchange currencies for their government utility. Being able to participate in the development of a crypto exchange and influence its future is very advantageous. Lastly, exchange token holders can also take advantage of discounts ranging from 1 to 50 percent on their transaction fees.

Exchange tokens and the cryptocurrency market

Exchange tokens are a significant part of the crypto industry, with a sector dominance of almost 6 percent and a market capitalization of approximately $116 billion. Binance is the largest cryptocurrency exchange globally. Its exchange token, BNB, is the fourth largest cryptocurrency by market capitalization and price action. It has a global market capitalization of nearly $69 billion.

How to get change coins

You can buy these tokens directly from the exchange, just like you would buy any other cryptocurrency. Most exchanges also offer these tokens during their launch as part of the Initial Exchange Offering (IEO). In some cases, exchanges may also provide these tokens through an airdrop, which is a free giveaway that helps the platform promote their coin.

(Edited by : Jomy Jos Pullokaran)