Exchange Tokens: To FTT and Beyond

Key Insights

• Exchange tokens are digital assets that are issued by cryptocurrency exchanges. These tokens typically give their holders certain benefits on the issuing exchange, such as lower trading fees, access to exclusive features, or the ability to vote on decisions affecting the exchange.
• Some examples of well-known crypto exchange tokens include Binance Coin (BNB), Huobi Token (HT), KuCoin Shares (KCS), and the infamous FTX Token (FTT).
• We find exchange tokens’ underlying value is tenuous at best, especially considering their value can drastically change based on the whims of the exchange management.
• If considering exchange tokens, BNB and OKB seem to be relatively undervalued based on the amount of trading volume they garner, what we consider the key driver of exchange value, compared to more richly valued tokens such as CRO and HT. $COIN also seems potentially attractive, given the regulatory oversight providing another level of assurance on the health of the exchange, coupled with the underlying volumes.

Exchange tokens are native assets distributed by a centralized exchange, often providing the holders' benefits within its closed ecosystem. Initially, they were created by crypto exchanges to bootstrap funding from users and create a “community ownership” model more palatable to investors.

Exchange tokens and their use case have come under greater scrutiny due to the recent collapse of FTX. The exchange's downfall was primarily brought about through the misuse of its native token, FTT. We explore what happened with FTT before analyzing and attempting to analyze the value of major exchange tokens.