Exchange tokens benefit as centralized exchanges battle with DeFi platforms
Exchange tokens catch a boost as governance and high yields attract fresh inflows and CeFi begins to merge with DeFi.
Fresh institutional and retail investor inflows into the cryptocurrency market have led to bull market conditions for many top tokens from blue-chips like Bitcoin (BTC) and Ether (ETH) to more recently established DeFi projects like AAVE and Synthetix (SNX).
Exchange tokens are another easily overlooked sub-sector of the market but they have been performing exceptionally well in 2021 as increases in trading volumes results in a larger pool of fees to collect when the exchange’s native token is used for settlement. Native exchange tokens are also typically used as the base pair for funding new listings and token buybacks.
Here are three of the top-performing exchange tokens in 2021 that continue to see upside potential as new investors flood into the market.
Similar to the experience of CryptoKitty users in 2017, the decentralized finance community has discovered that the main drawback of increased usage of the Ethereum network is high gas fees and long transaction times.
As a result, centralized exchanges and their associated native tokens have seen renewed interest as new features like staking, yield farming and collateralization allow investors to profit from holding their investments. These new offerings also allow investors to participate in DeFi-like offerings without worrying about impermanent loss and they also receive access to the latest coin listings.
Binance Coin (BNB) recently experienced a price breakout to a new high of $349.13 on Feb.19 as the top exchange by volume evolves both its centralized and decentralized exchange capabilities alongside further upgrades to the Binance Smart Chain.
Several DeFi-related projects, including Venus (VNS) and Linear Finance (LINA) launched on the BSC in recent weeks which utilizes the BNB token to pay transaction fees on the network.
Binance also offers a continually expanding list of “investment products” that allow users to lend their tokens to the exchange pools in return for varying degrees of yield opportunities depending on lock-up periods and token demand.
Popular coins are quickly added to the growing list of tokens with options or futures trading capabilities, offering something for both devoted community members as well as pessimists who would rather take their chance at shorting newly listed assets.
Trading volume dominance and the benefits of having the first-mover advantage point to further upside potential for the Binance ecosystem and BNB.
Binance’s steady expansion and its active project incubator and Binance Smart Chain are designed to challenge Ethereum’s dominance in the sector, thus there remains a strong possibility that BNB could see an extension of recent gains.
The traditional finance and cryptocurrency markets are slowly beginning to merge and developing products for all types of traders. In 2020, derivatives exchanges also increased in popularity and their trading volumes steadily rose to new highs on a weekly basis.
Following the U.S. government crackdown on controversial derivatives exchange BitMEX, the door was opened for a newer, more community focused option to fill the gap.
FTX Token (FTT) is the exchange token for the FTX cryptocurrency exchange which got its start in the summer of 2019. For much of that first year, FTT traded below $2 with an average trading volume of $2 million as the exchange worked on establishing itself and attracting new users.
The exchange began to see an uptick in activity in 2020 which coincided with an increase in trading volume for FTT as well as its price.
As the platform expanded, additional functionality was added to the token which now includes fee rebates, staking and a ‘Buy & Burn’ mechanism that helps decrease FTT’s circulating supply to increase token value.
Since Dec.11 when FTT was trading at $4.12, a surge in buying volume which reached a peak of $270 million on Feb.19 has propelled FTT to a new record high of $35.01 as the exchange is rapidly becoming the go-to derivatives exchange for the cryptocurrency community.
KuCoin Shares (KCS) has been a late bloomer in this bull market, maintaining a relatively flat token value until the beginning of February when a sudden uptick in trading volume helped elevate KCS price from $1.19 on Feb.2 to a recent high of $3.99 on Feb.19.
VORTECS™ data from Cointelegraph Markets Pro began to detect a bullish outlook for KCS on Feb. 18 when it reached a high of 66, less than 24-hours before the price breakout.
The VORTECS™ score, exclusive to Cointelegraph, is an algorithmic comparison of historic and current market conditions derived from a combination of data points including market sentiment, trading volume, recent price movements and Twitter activity.
A scroll through the project’s Twitter feed shows that on Feb.4 the biggest announcement coming out of the exchange was the listing of the popular blockchain-based video streaming platform Theta, which had previously been difficult to obtain for U.S. residents.
KuCoin also offers a growing list of tokens available for derivatives trading along with various ways to earn through staking or providing liquidity, with fees generated by the platform distributed to token holders who keep their KCS staked on the exchange.
DeFi hype overshadows exchange token gains
DeFi may be dominating the conversation in the cryptocurrency sector right now, but major issues including gas fees remain a barrier to widespread adoption.
While the roll out of layer two solutions may offer some relief to this problem, concerns about liquidity across separate blockchains continue to pose significant barriers to a smooth, low-cost trading experience.
Many who are chasing the DeFi hype fail to realize that popular token listings and lower trading fees have led to a resurgence in the use of centralized exchanges.
This translates into a larger user base that conducts more transactions, leading to an increase in trading volumes and healthy price appreciation for underlying exchange tokens like BNB, FTT and KCS.
Centralized exchanges still capture the majority of trading volume and this does not appear to be changing anytime soon. While decentralized exchanges like Uniswap and SushiSwap are growing in prominence and beginning to eat into the market share of centralized exchanges, they still comprise only a small portion of total trading volume seen in the cryptocurrency market.
The battle between exchanges is continuing to heat up and as long as this is the case, the increased inflow to exchange tokens could lead to future upside.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.