Exchange Tokens

What are Exchange Tokens?

Centralized exchanges are centerpieces in the crypto industry and have garnered some of the highest historical valuations in both private and public markets. Despite their core function in the space, we have seen that they can be highly cyclical, and their performance is most often dependent upon price action. Further, the business model and value proposition have been revealed to be quite simple: provide users with access to crypto trading 24/7, 365 days a year, while charging a fee for providing a liquid and secure market for cryptoassets. Leaving aside any ancillary offerings offered by the cadre of existing exchanges (think staking, custody, wallet services, etc.), the commoditized nature of these exchanges has resulted in a global battle for liquidity and customer loyalty among the growing set of companies offering exchange services.

This competition for liquidity and customer loyalty is at the heart of exchange token adoption. While the use case can differ by token, at its core, an exchange token is a digital asset native to a centralized exchange and issued by the entity that operates the platform. The tokens usually provide holders with some utility or incentive to hold and transact on the exchange, such as lower trading fees, rebates, and...