Is It Worth Investing in Exchange Tokens?

Written by Aubrey Hansen

A recent trend in the crypto world is for exchanges to build and release their own tokens. For instance, Binance has BNB, RightBTC has RT, and Cryptopia has CEFS. Generally speaking, owning a certain quantity of these tokens offers perks to traders when they use them on the respective exchanges. These can be in the form of discounts on exchange rates, reduced withdrawal fees, or access to upcoming airdrops. This is, for some, enough reason to buy a few exchange tokens, but beyond those few perks, is it worth actually throwing large sums of money at these projects?

Big and Small Exchanges

One viewpoint which is regularly shared among traders is that exchange tokens are generally a strong investment as they are almost guaranteed to accumulate value so long as the exchange stays trustworthy and relevant. For instance, investing in Binance Coin makes sense so long as Binance has a good public image. This is the same for other exchange tokens, even smaller ones like Huobi Token and Right Token. It could even be argued that tokens from smaller exchanges are even sounder as an investment as the concept of relevancy is not as important. Smaller exchanges fit into a niche of offering different features and cryptocurrencies; they build their reputation on loyalty rather than on major promotional aspects. It can be theorized that if a smaller exchange has a token, that token will continue to perform well so long as the exchanges simply exists. The bar for success is set much lower with these exchanges. For instance, Binance Coin could drop in value if the Binance exchange gets overtaken by another exchange, whereas smaller exchanges do not have to worry so much about rivals.

Failing Exchanges

One factor which needs to be considered when investing in exchange tokens is that they are so heavily tied to their platforms that if the platform fails then the investment turns to zero. Unlike cryptocurrencies such as Bitcoin or Ethereum, where you could argue that their value borders on intrinsic, the value of exchange tokens is heavily extrinsic. Exchange tokens are only as valuable as the exchanges they are tied to. If an exchange has to close its doors then its token will be rendered useless, but it doesn’t have to be this drastic for their value to disappear. Exchange tokens can lose most of their value from other accidents or issues occurring such as hacks, maintenance issues, or problems with communication. For instance, if Coincheck had its own token, it would have lost most of its value from its NEM hack, despite the fact that it is still operational. The same is true about BitGrail.

The point here is that while exchange tokens may seem like a stable choice to invest in, they are really only as stable as the platforms they are a part of. This is not to say that they should be avoided, just that people need to choose wisely which ones they choose to invest in. Rather than researching an exchange token, you should be researching the exchange itself. Only invest if you are confident and comfortable relying on the professionalism of the exchange in question.