Comparison of crypto exchange tokens: 09/18
Crypto exchange tokens have established themselves as a new type of crypto investment that allows a direct participation from the infrastructure of the market. While diversification is a rather funny approach in the crypto ecosystem (everything price-related depends on Bitcoin), exchange tokens allow for some form of in-sector-diversification from cryptocurrencies and dApp tokens.
In the following post, I will provide an overview of 20 different crypto exchange tokens. The goal of this article is not to evaluate the potential over- or under-pricing of assets but only descriptive statistics. Just like for the blockchain infrastructure projects, I will try to update this article in regular intervals in order to improve data quality and quantity and to observe the development of crypto exchange tokens over time. Exchange tokens are highly exciting (financial) instruments, as they often combine aspects of utility and security tokens. Additionally, their value/price should relate to trading volume, not to overall market conditions. But this is not always the case.
To gain a fundamental overview of the relevance of crypto exchange tokens, it makes sense to look at the kind of exchanges that make use of such models. With Binance, Okex, Huobi and Bitfinex (Ethfinex), four of the biggest existing exchanges worldwide have introduced exchange tokens.
In the table below, all (in this post) observed exchanges are listed. When looking at the variable trading volume per visitor or just the Alexa ranking, the trading volume of OKEX and Huobi seems off. This could be an indicator for faked trading volume, something that I personally expect from various (more) exchanges. This report is a helpful resource for a deeper look at fake trading volume. The actual trading volume is a very relevant factor for exchange tokens, if token get bought back (example Binance) or users receive a profit share (example OKEX).
On August 31, OKEX distributed approximately $0.00584893 (in BTC) per OKB to token holders. 50% of the exchanges profits are distributed on the circulating supply of 300 million OKB; this would account for $1.75 million distributed to OKB holders. The weekly profits of the platform would therefore amount to $3.5 million, what seems off in respect to the reported trade volume. OKEX charges 0.15% for maker and 0.2% for taker fees. If you count in that most volume will be done by high volume market makers, an average fee of 0.1% is likely rather high. With a daily reported trading volume of around $1 billion, the daily revenue of OKEX would be $1 million, $7 million per week. This calculation does even not include the OKEX future markets. Something might be off; the average platform fee would need to be 0.05%. Still, at a current price of $1.86 per OKB, the yearly dividend for OKB amounts to ($0,00584893 * 4 weeks * 12 months =) $0.28 (15%), not counting in compound interest, as dividends are distributed in BTC. Please keep in mind that OKEX classifies the dividends as “Happy Friday Bonus” and they may end the current distribution scheme at any given time. Additionally, the OKB supply will be increased in the future, leading to smaller dividend payments per token.
Exchange Token Statistics
The table below provides an overview of the various tokens that the exchanges use. Binance Coin (BNB) is the most relevant token with a market capitalization of $1 billion based on overall “worth”. Yet, there are three other tokens with a $100 million+ capitalization. Surprisingly, both BNB and Huobi Token (HT) are traded on 13 external exchanges. As exchange tokens represent customer loyalty instruments in most of the cases, it seems pointless for other exchanges to add the token. After a closer look, it can be identified that most of the exchanges are either very small or decentralized.
Most of the presented tokens have been distributed through an Initial Coin Offering (ICO), with BNB being the by far most successful one in regards to return of investment (ROI). $25 million worth of BNB were sold in the ICO for around $0.11. By now, one BNB is worth $11.26, more that 100x for ICO contributors. The ICOs of KuCoin, COSS, LAToken, Bibox, Huobi and Lykke also show a positive ROI in USD. Still, in many cases exchange tokens offer some additional form of financial incentive, like fee or profit sharing. Therefore, a negative ROI in regards to the ICO price does not need to result in a negative overall ROI.
Exchange Token Models
To classify the various properties of exchange tokens, I introduce five different clusters to describe the token model. It can be seen that for cluster one (discounts), ten different exchanges make use of this mechanism. As Ethfinex reimburses users based on their trading fees, the Nectar token could also be classified as a discount instrument. While Binance, Bibox and KuCoin makes use of discount in the form of reduced trading fees, exchanges like OKEX or LAToken offer non- or reduced-fee trading pairs for their token.
Six exchanges use burn or buyback mechanisms, which may potentially classify these tokens as securities. Platforms take a certain amount of their profits to buy back or burn tokens, therefore decreasing their free supply. Token holders gain a passive profit participation.
Nine different exchanges make use of dividend distribution or fee sharing. While OKEX or Bibox simply distribute profits, IDEX and Neon Exchange will have token holders stake their tokens in order to receive (or increase) dividends.
Ethfinex users receive a 50% personal fee reimbursement in Nectar token (NEC), which is comparable to a poker rakeback program. NEC holders additionally receive Ethfinex Voting Token (EVT) through airdrops every two weeks. One could argue that these airdrops are a dividend-like, as EVT is publicly traded on Ethfinex and can additionally be used to vote for new token listings on the platform. Every two weeks, the former EVT are “eliminated” (made useless) and new EVT are airdropped. With NEC having a price of $0.37 and EVT currently trading at $0.0082, that would results in a biweekly “dividend” of 2,2% (yearly: $0.0082 * 2 weeks * 12 months =) $0.1968 (53%). Yet, you have to keep in mind that EVT prices are very volatile, so these returns are only theoretical and NEC is (to some amount) an inflationary token. Additionally, EVT prices may decrease over time, as more and more projects get listed on Ethfinex.
The top five exchanges enable token holders to vote on new tokens on their platform. But this does not mean than anyone with enough tokens is able to independently list any token. For instance, on OKEX new tokens will additionally need support from so-called prime investors and on Ethfinex users are only able to vote on a predefined list of tokens.
Crypto exchange tokens are highly exciting but also very difficult to assess. They offer individuals and companies to diversify into security-like instruments that likely have a bigger underlying value than “classical” utility dApp tokens, not necessarily cryptocurrencies. If you are in a gold rush, it might make sense to invest into shovels. Crypto exchanges are highly profitable, yet their market persistence is unclear. I personally believe that more established exchanges like Bitfinex are there to stay and the current “number one” exchange Binance will also remain relevant. But it is fully unclear to what extent these exchanges might be displaced in the future. Both Bitfinex and Binance are working on decentralized exchanges, disrupting their own business. To this day, decentralized exchanges remain inefficient but time will tell what happens in the future. Additionally, security tokens are on the rise (Feel free to have a look at our project in development: STOKR, a crowd-investing platform for security tokens. We don’t have a platform token but use ETH and EUR.): If the current big exchanges cannot obtain the relevant licenses, they might loose users to (1) new innovative competitors or (2) established security exchanges that implement crypto. Exchange tokens can be highly profitable but their underlying risk is priced in.
Projects like Bancor, Airswap or Leverj are building decentralized exchanges that make use of a platform token. Theoretically, these tokens could be classified as exchange tokens. Yet, I tend towards only presenting tokens in future posts that provide some form of profit participation to token holders. This would mean that exchanges like Quoine, LAtoken or Cobinhood would not be implemented in the next update. In this post, I did not include crypto exchange tokens that make use of so-called transaction mining. These would include exchanges/tokens like FCoin (FT), CoinEx CET), CoinBene (CONI), ABCC (AT), Bit-Z (BZ) or BigONE (ONE). I may include them in a future post.
Disclaimer: This is currently a fun project, which is why I was not able to put a lot of time in verifying information that I gathered. One goal of this post is to gain feedback to actually be able to post an update in one month with a much higher data quality and more variables. So if you have any feedback on data or variables, feel free to contact me at email@example.com. If you want me to add a project, it would be very cool if you could directly send me data (+source) on the project (like mechanisms etc.) That would save a lot of time. I’m not associated with any of these projects and this is not investment or legal advice.