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Crypto Exchange Tokens Setting Up For Possible Rally In 2022

By Richard SalmondCryptocurrencyMar 12, 2022 04:29AM ET
www.investing.com/analysis/crypto-exchange-tokens-setting-up-for-possible-rally-in-2022-200619844
Crypto Exchange Tokens Setting Up For Possible Rally In 2022
By Richard Salmond   |  Mar 12, 2022 04:29AM ET
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The native tokens of crypto exchanges have recently become a separate and very promising class of investment instruments thanks to a number of features that distinguish them from conventional cryptocurrencies.

The first reason is that they provide users with the opportunity to receive discounts when trading on crypto exchanges. For example, users can get up to 25% in discounts when paying fees on Binance with the exchange’s native token—the BNB.

KuCoin offers a 20% discount if trading fees are paid using its native token KCS, which is close to Binance's BNB. In addition, investors can also enjoy a maximum discount on fees if you hold KCS, up to -0.005% Maker fee and 0.02% Taker fee at most, which is much lower than Binance (0.02% Maker fee and 0.04% Taker fee).

Deflationary Tokens

Apart from offering generous discounts, many exchanges are trying to provide the holders of their tokens with the possibility of generating passive income, for example, through staking. Additional profitability for the holders of native tokens is also ensured through the regular "burning" of significant volumes of coins from circulating supplies.

During the burning procedure, a selected amount of tokens is transferred to so-called burning wallets that have no access keys. Such burning procedures protect remaining coins from depreciation, since their volume in circulation is constantly being artificially decreased.

Binance buys back and burns its BNB on a quarterly basis in an amount equivalent to 20% of platform income. During the last burning procedure, Binance recalled 1.68 billion tokens from circulation. Huobi burned an equivalent of $7.57 million in 823,000 tokens in February. KuCoin's KCS has a more aggressive burn mechanism. The KCS team performs monthly KCS buybacks and burns in order to speed up its deflationary process, which enables KCS to have the lowest circular supply of all the mainstream exchange tokens.

Driving Factors

Some exchanges provide holders of their tokens with additional opportunities to make their use more profitable. For example, KuCoin awards daily bonuses to anyone who owns six or more KCS. Such bonuses are paid from the daily income generated by the exchange. The exchange said one KCS whale received a profit of over $2 million via KCS Bonus. In addition, KCS holders receive discounts when booking travel through the Travala service. The exchange has also announced that it plans to build a blockchain-based value self-circulation ecosystem, giving all KCS, KuCoin, and KCC community members access to an extended list of services.

According to CoinMarketCap, over 70 different native crypto exchange tokens are currently available on the market. Each exchange is trying to attract investors with new features and services. For example, Binance offers the holders of its native token a set of unique products, ranging from the Launchpad designed for investments in high-quality projects to savings and the Binance Visa Card.

At the same time, holders of exchange tokens rarely receive the opportunity to directly participate in the development of the project. This is especially related to the voting regarding listings of new coins. Of the major exchanges, only Huobi (HT) and MEXC (MX) provide such privileges. However, this comes with regulatory risks, as voting tokens become frighteningly similar to common shares and may well be sanctioned by the US Securities and Exchange Commission. Granting such features to users can spill out into considerable problems for crypto exchanges operating on the US market.

Exchange tokens actually combine the advantages of being a means of payment, acting as discounts for exchange services, and performing the role of a profitable investment instrument. But their main advantage over conventional cryptocurrencies is that native exchange tokens are much less subject to market fluctuations, especially during price drops. The secret is simple—as trading volumes increase during crises, the revenue of crypto exchanges also rises and the value of their native tokens grows accordingly. Endowed with such qualities, exchange tokens can even be used as a volatility-mitigating instrument on the crypto market.

It is not surprising that many exchange tokens demonstrated growth rates calculated in the tens and hundreds of percent last year. For instance, KCS is the top runner of platform tokens with its price increased by 30 times from $0.690 on Jan. 1, 2021 to $21.376 on Dec.. 31, 2021. In May 2021, the BNB token reached its ATH of $675 and became fourth in terms of capitalization among all cryptocurrencies on the market.

The rally of exchange tokens is likely to continue this year, since the US dollar has been depreciating at a record pace over the past 50 years. With the annual inflation rate in the US inching closer to 8%, investors are frantically looking for alternative investment tools, cryptocurrencies included. Trading volumes on crypto exchanges are therefore likely to grow, leading to the corresponding strengthening of native exchange token rates.

Moreover, the additional advantages offered by exchange tokens can make them more popular and demanded than many classic cryptocurrencies, allowing them to climb up to the top of CoinMarketCap ratings in the next few years.

Selection Criteria

The basic principle for selecting an exchange token as an addition to investment portfolios is quite simple. The prospects for the growth of a coin depend directly on the popularity of the issuing exchange. The popularity can be assessed based on three parameters—real-time performance, performance dynamics, and risks.

Current metrics indicate that the undisputed market leader is the Binance crypto exchange—a fact reflected in the capitalization of its native BNB token, which is second only to the combined capitalization of BTC, ETH, and USDT. Among the leading exchanges with native tokens in terms of current popularity based on the number of weekly visits are KuCoin, FTX, Bybit, OKX, and Huobi.

As for performance dynamics, the leaders are KuCoin, which stepped over the 10 million users threshold in December of 2021, with daily transaction volumes in excess of $3 billion. The native token of crypto exchange FTX has become the second most popular token among users after ETH in just one year, while Binance reported 65% growth in monthly trading volumes amidst crypto regulation pressure.

At the same time, Binance, KuCoin, and FTX continue to build and empower entire ecosystems around their core service structures. KCC (short for KuCoin Community Chain) announced in February that it is launching a $50 million accelerator program, which foresees the exchange providing grants to developers, funding hackathons, and creating incubators for new projects related to the development of blockchain technologies and the blockchain network of the KCC that hosts the native exchange token.

"The incentive program is our top priority this year," said KuCoin Community Chain Development Director Sam Yao. "We look forward to continuing to enrich our ecosystem by meeting the diverse investment needs of users. We welcome projects deployed on KCC and participating in our incentive program to help us build a thriving ecosystem."

KCS, the native token of KCC, will benefit from the explosion of the KCC ecosystem. Since we saw the price of BNB make a significant increase after the launch of the Binance smart chain, this may also occur with KCC and KCS.

The FTX crypto exchange, another platform with impressive development dynamics, also sees prospects related to the development of a native ecosystem. The exchange recently announced the launch of a project aimed at introducing cryptocurrencies and Non-Fungible Tokens into the gaming industry. "We are launching FTX Gaming, because we see gaming as an exciting use case for cryptocurrencies," the exchange’s representative said. "There are more than two billion gamers in the world who have played and collected digital items and now, they can also own them."

As for the risks, they are primarily associated with new regulatory restrictions. When the People’s Bank of China (PBOC) called cryptocurrencies a threat to the traditional financial system last September and declared any transactions with digital assets illegal, the tokens of the OKEx and Huobi crypto exchanges lost value considerably. OKB fell by 16%, and HT by 23%. The reason is simple, since a significant number of the users of both venues live in China. When the British regulator banned Binance from trading cryptocurrencies in the UK on June 21, 2021, BNB;s price fell from $340 to $261 in a single day.

Such risks remain relevant this year, and the largest and most popular crypto exchanges, as well as exchanges with a large number of clients in countries with increased regulatory risk, such as China, India, and Japan, are most exposed.

Taking into account the aforementioned selection criteria, investors should pay considerable attention to the tokens of the KuCoin (KCS), FTX (FTT), MEXC Global (MX) exchanges throughout 2022.

Crypto Exchange Tokens Setting Up For Possible Rally In 2022
 

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Crypto Exchange Tokens Setting Up For Possible Rally In 2022

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