What are exchange coins?

An exchange coin is a type of cryptocurrency issued by a cryptocurrency exchange to serve various utility functions within the exchange’s ecosystem. These coins, sometimes called exchange tokens, provide users with benefits such as discounts on trading fees, staking rewards and access to special features or services.

There’s a fair bit of vocabulary knocking around when it comes to describing different categories of cryptocurrencies. Native coins, utility tokens, governance tokens, stablecoins, altcoins — the list goes on. However, one kind of cryptocurrency that you might not be familiar with is the “exchange coin.”

An exchange coin is a type of cryptocurrency issued by a cryptocurrency exchange. These coins, sometimes referred to as exchange tokens, serve utility functions within the ecosystem of the issuing exchange.

For example, many exchange coins offer users discounts on trading fees when used to pay for transactions on the exchange. BNB (BNB), for instance, offers reduced trading fees on the Binance platform.

Another common utility is staking, where users can stake their exchange coins to earn rewards, such as additional coins or tokens, or participate in various exchange activities, like voting on new token listings.

Holding exchange coins often grants users access to special features or services on the exchange, such as premium customer support or participation in token sales called initial exchange offerings (IEOs).

Some exchange coins are used for other purposes, such as collateral for 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, the truth is their exact use cases differ slightly.

It all comes down to whether a cryptocurrency is the native coin of a blockchain or is built upon it according to a preset token standard.

For example, BNB is the native cryptocurrency of the BNB Smart Chain, which is the blockchain that powers the Binance exchange. As the exchange coin is native to the network and used to pay gas fees, it should be correctly classified as an “exchange coin.”

Then, there’s the KuCoin Token (KCS), the exchange “coin” of the KuCoin exchange. As KCS is actually an ERC-20 token running on Ethereum, it should be correctly defined as an “exchange token.”

Later in a project’s life cycle, the project’s team may develop its own blockchain and migrate its existing exchange token to the native network. For example, the Crypto.com exchange coin Cronos (CRO) started out 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 a native coin.

This is a dichotomy that exists within the crypto industry. For example, Ethereum is a coin serving as the native currency of the Ethereum network with which gas fees are paid, while Tether (USDT) is an Ethereum token running on the network as somewhat of a tenant.

After settling on the coin vs. token key differences debate, let’s move on.

Why invest in exchange coins and tokens?

Exchange coins aren’t quite digital gold, but they do offer both financial incentives and strategic benefits. These assets are integral to their platforms’ ecosystems, providing significant demand-side support.

Trading fee discounts

Holders of an exchange coin often benefit from reduced trading fees on the exchange in question, which can be a significant cost-saving measure for day traders. For instance, BNB users enjoy discounted trading fees on the Binance platform, which directly translates into lower transaction costs.

Similarly, the Huobi Token (HT) and KuCoin Token provide fee reductions on their respective exchanges, appealing to active traders seeking to minimize expenses.

Token burn mechanisms

Beyond fee discounts, these tokens often play a role in token burn mechanisms, where a portion of the tokens is periodically destroyed to reduce the overall supply. This deflationary tactic can increase the token’s scarcity and, theoretically, its value over time.

Binance, for example, regularly conducts token burns for BNB, aiming to enhance its long-term monetary value. Such mechanisms create potential appreciation in token value, providing a tangible return on investment for holders.

Governance

Another compelling aspect of exchange tokens is their role in governance. Many platforms enable tokenholders to participate in governance decisions, voting on proposals that can shape the future of the exchange.

This democratization of decision-making can empower investors, giving them a voice in important matters such as protocol upgrades, fee structures and new listings. Huobi Token and Uniswap’s (UNI) are prime examples of 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 exchange but also fosters a sense of community and shared purpose.

Yield generation

Investing in exchange coins and tokens can also be a means to generate yield through staking and other DeFi activities. Many exchanges offer staking programs where tokenholders can lock up their assets to support network security and operations in return for staking rewards.

For example, Aave (AAVE) and Synthetix (SNX) tokens can be staked to earn interest or additional tokens, providing a passive income stream. This capability to generate yield enhances the overall value proposition of holding these tokens, allowing investors to earn returns beyond mere price appreciation.

Popular exchange coins and tokens

While BNB remains the top exchange coin due to its extensive use on Binance, other coins like Bybit’s BYT, GateToken and OKB are gaining traction by offering trading fee discounts, exclusive investment opportunities and governance roles, signaling their potential for future growth.

BNB is the most popular exchange coin on the market. It is native to the Binance exchange, the largest crypto exchange globally, with a 24-hour trading volume that quadruples that of its nearest competitor, Bybit.

The combination of trading 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 lucrative digital asset, BNB represents a promising option with a solid foundation for future growth. However, it’s not the only exchange coin on the market.

The Bybit Token is the native ERC-20 token of the Bybit exchange, and while still dwarfed by Binance, it is one of the fastest-growing exchanges. Bybit’s rise to prominence is attributed to its user-friendly interface, robust security measures and innovative trading products. BYT holders enjoy reduced trading fees, significantly lowering costs for high-frequency traders.

Bybit also hosts promotional events and trading competitions, offering additional rewards and bonuses for BYT holders. As Bybit evolves, BYT will play a crucial governance role, allowing holders to vote on key decisions and protocol upgrades, fostering community engagement.

GateToken (GT) is the native ERC-20 token of Gate.io, known for its extensive trading pairs and innovative products. GT offers trading fee discounts, making it attractive for active traders.

Holders gain access to exclusive token sales, providing early investment opportunities with potential high returns. GT also allows participation in platform governance, enabling holders to vote on key decisions.

Similarly to Crypto.com, OKB, the native coin of OKX, 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 receive significant discounts on trading fees, and uniquely, OKB is used to participate in token sales on OKX’s Jumpstart platform, providing early access to new projects and investment opportunities.

Much like Binance, OKX periodically conducts token burns to reduce the total supply of OKB, which can enhance the token’s scarcity and potentially drive up its value over time.

OKX’s strategic initiatives to expand its global presence and enhance its product offerings suggest a growing user base and increased adoption of OKB.

Expanding utility of exchange coins

Exchange coins like BNB and OKB, initially used within their respective platforms, are increasingly being accepted as payment methods, providing alternative options to traditional cryptocurrencies.

Exchange coins aren’t as common in the payments ecosystem as digital currencies such as Bitcoin (BTC) and USDT, but that isn’t to say they don’t have their place.

BNB, for example, is widely accepted beyond the Binance platform. Many Shopify merchants accept BNB as a form of payment through integration with cryptocurrency payment processors like CoinPayments. Additionally, in certain regions, Takeaway.com (part of Just Eat) accepts BNB for food deliveries.

Similarly, OKB is accepted by a number of merchants and services for payment purposes. It’s widely used for purchasing goods, services and even travel bookings. Additionally, ecosystems such as Binance, OKX and Crypto.com offer Visa cards that enable users to spend their exchange coins and tokens at any merchant that accepts Visa.

Nevertheless, many exchange tokens and coins are primarily used within their respective ecosystems and aren’t designed as a medium of exchange. BYT, for example, is primarily designed to be used within the Bybit crypto ecosystem for trading fee discounts and platform-related activities.

Similarly, GT is mainly used within the Gate.io platform for trading fee discounts, participation in token sales and governance. Users can always exchange the tokens for other more freely used currencies when paying for goods and services.