The purpose and functionality of exchanging coins and tokens
What are currency coins?
An exchange coin is a type of cryptocurrency offered by a cryptocurrency exchange to serve various utility services within the exchange ecosystem. These coins, sometimes called exchange tokens, provide users with benefits such as discounts on trading fees, collecting rewards, and special features or services.
There is a fair bit of terminology when it comes to describing the different categories of cryptocurrency. Native coins, utility tokens, governance tokens, stablecoins, altcoins – the list goes on. However, one type of cryptocurrency that you may not be aware of is the “exchange coin”.
An exchange coin is a type of cryptocurrency issued on a cryptocurrency exchange. These coins, sometimes called exchange tokens, serve utility functions in the ecosystem of the exchange it provides.
For example, many exchanges offer discounts to users for trading fees. BNB (BNB), for example, offers discounted trading fees on the Binance platform.
Another common utility is staking, where you participate in various exchange activities such as voting on new token listings to earn rewards such as additional coins or tokens.
Holding an exchange's coins allows users to access special features or services on the exchange, such as premium customer support or participating in token sales called Initial Exchange Offerings (IEOs).
Some exchange coins are used for other purposes, such as collateral, platform transactions, or as an underlying trading pair for other cryptocurrencies, although this is a less common use case.
Exchange Tokens and Coins: Key Differences
While the terms “token” and “coin” are often used interchangeably, the truth is that their uses are slightly different.
It all comes down to whether the cryptocurrency is a native coin of the blockchain or is built on top of it based on a predefined token standard.
For example, BNB is the native cryptocurrency of the BNB Smart Chain, which is the blockchain that powers the Binance exchange. An exchange coin is native to the network and should be properly classified as an “exchange coin” as it is used to pay gas bills.
Then there's the KuCoin Token (KCS), the “coin” of the KuCoin exchange. As KCS is actually an ERC-20 token that runs on Ethereum, it should be properly described as an “exchange token”.
Later in a project's lifecycle, the project team may develop its own blockchain and migrate the existing exchange token to the native network. For example, the Crypto.com exchange Coin Kronos (CRO) was launched as an ERC-20 token on Ethereum. However, in November 2021, the project migrated its token to the Kronos blockchain, which now serves as its native coin.
This is a dichotomy in the crypto industry. For example, Ethereum is the coin that serves as the base currency of the Ethereum network for gas payments, while Tether (USDT) is the Ethereum token that acts somewhat as a tenant on the network.
After debating the key differences between coins and tokens, let's move on.
Why invest in exchange coins and tokens?
Exchange coins aren't quite digital gold, but they offer both financial incentives and strategic advantages. These assets are integral to their platform ecosystems, providing demand-side support.
Transaction fee discounts
Coin holders often take advantage of reduced trading fees on the exchange in question, which can be a significant cost-saver for day traders. For example, BNB users enjoy lower transaction fees on the Binance platform, which directly translates to lower transaction costs.
Similarly, Huobi Token (HT) and KuCoin Token offer fee reductions on their respective exchanges, which appeal to active traders who want to reduce costs.
Token burning methods
Beyond payment discounts, these tokens often play a role in token burning schemes, where a portion of the tokens are periodically destroyed to reduce the total supply. This method of debasement can increase the token's scarcity and, in theory, its value over time.
For example, Binance regularly conducts token burns for BNB with the aim of increasing its long-term monetary value. Such methods create a potential appreciation in the value of the token, resulting in a tangible return on investment for holders.
Management
Another imperative is the role of exchange tokens in governance. Many platforms allow tokens to participate in management decisions, voting on ideas that can shape the future of the exchange.
This democratic process of decision-making can encourage investors, giving them a voice on important issues such as protocol updates, fee structures and new listings. Huobi Token and Uniswap's (UNI) are major tokens where holders can vote on significant changes and influence the direction of the platform.
This participatory role not only aligns investors' interests with the growth and development of the currency, but also fosters a sense of community and common purpose.
Product generation
Investing in exchange coins and tokens can be a way to generate income through staking and other DeFi activities. Many exchanges offer staking programs in which token holders lock up their assets to support network security and reward operations.
For example, Aave (AAVE) and Synthetix (SNX) tokens can be invested in shares to earn interest or additional tokens, providing a passive income stream. This yield-generating potential increases the overall value proposition of owning these tokens, allowing investors to earn income beyond price appreciation.
Popular currency exchange coins and tokens
While BNB remains the most widely traded coin on Binance, other coins such as Bybit's BYT, GateToken, and OKB are gaining interest, showing their potential for future growth by offering trading fee discounts, unique investment opportunities, and management roles.
BNB is the most popular exchange coin on the market. Native to the Binance exchange, the world's largest crypto exchange, its 24-hour trading volume is four times that of its nearest competitor, Bybit.
The combination of transaction fee discounts, participation in exclusive investment opportunities, integration into various financial services and increasing adoption 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 strong foundation for future growth. However, it is not the only currency on the market.
Bybit Token is the native ERC-20 token of the Bybit exchange, and while it is still underpowered by Binance, it is one of the fastest growing exchanges. Baybit is known for its user-friendly interface, strong security measures and innovative business products. BYT owners enjoy discounted trading fees, which significantly reduces costs for high-frequency traders.
Bybit hosts promotional events and trading contests offering additional rewards and bonuses to BT owners. As Bybit evolves, BYT plays a critical governance role, encouraging community participation by allowing holders to vote on key decisions and protocol improvements.
GateToken (GT) is Gate.io's native ERC-20 token known for its wide range of trading pairs and innovative products. GT offers trade payment discounts, which makes it attractive to active traders.
Holders will have access to exclusive token sales, which can turn early investment opportunities into high profits. GT also allows participation in platform management, allowing owners to vote on key decisions.
Similarly to Crypto.com, OKB, OKX's native coin, was originally issued as an ERC-20 token on the Ethereum blockchain but has since migrated to OKX's own blockchain, the OKT Chain.
OKB holders will receive significant discounts on trading fees, and uniquely, OKB will be used to participate in token sales on OKX's Jumpstart platform, providing early access to new projects and investment opportunities.
Like Binance, OKX conducts periodic token burns to reduce the total supply of OKB, which can increase the scarcity of the token and increase its value over time.
OKX's strategic initiative to expand OKX's global presence and enhance its product offerings will increase the growing user base and acceptance of OKB.
Expanding the use of exchange coins
Coins such as BNB and OKB, which were initially used by their respective platforms on exchanges, are gaining acceptance as payment methods, providing alternatives to traditional cryptocurrencies.
Exchange coins are not as common in the payments ecosystem as digital currencies like Bitcoin (BTC) and USDT, but that doesn't mean they don't have a place.
For example, BNB is widely accepted beyond the Binance platform. Many Shopify merchants integrate cryptocurrency payment processors like CoinPayments and accept BNB as a form of payment. Additionally, in certain regions Takeaway.com (part of Just Eat) accepts BNB for food deliveries.
Similarly, OKB is accepted by many merchants and services for payment purposes. It is widely used to purchase goods, services and travel bookings. Additionally, ecosystems like Binance, OKX and Crypto.com offer Visa cards that allow users to withdraw their coins and tokens to any merchant that accepts Visa.
However, many exchange tokens and coins are mainly used in their respective regions and are not designed as exchange hubs. BYT, for example, is primarily designed to be used for business payment discounts and platform-related activities within the Bybit crypto ecosystem.
Likewise, GT is primarily used to participate in the Gate.io platform for trading payment discounts, token sales and management. Users can always exchange tokens for other freely usable currencies when paying for goods and services.
