If you have been following the latest news and digital currency updates, you probably know that many exchange-based tokens are circulating on the market. The concept of this technology is developed particularly as an attempt by exchange platforms to increase the liquidity of the market. But the solution they came up with was to develop a native token, and the holders of the token could acquire additional benefits like discounts on trading fees.
Even though the crypto market experienced a slow ROI overall in 2019, the year was still beneficial for most users who held on to their exchange-based tokens. Not to mention that the asset consistently documented significant gains for several months. This article will cover the fundamentals of exchange-based tokens, their general utility, functionality, price fluctuations, and overall functionality.
What Are Exchange-Based Tokens
Before you can narrow down the best exchange-based tokens and start investing in them, you must first understand what exchange-based tokens are. Exchange-based tokens are utility tokens that can be used to pay for goods and services and mitigate risks during a market downturn within the crypto exchange ecosystem. These tokens also provide various bonuses and benefits when used in conjunction with exchange tools and products.
These tokens are only available on their parent exchange, and the exchange-based tokens are frequently interconnected and offered as incentive programs to users of the platform. These tokens are generally intended to elevate the liquidity rate of exchange, provide community governance services, and incentivise trading activities.
How It Fits In With Your Portfolio
Tokens traded on exchange platforms are a great way to diversify your cryptocurrency portfolio. They make it possible for you to profit financially during market corrections, given the low correlation with top digital currency assets. Even if the market is bearish and cryptocurrency prices fall, exchange-based token prices can skyrocket.
Moreover, during downtrends, traders can generate revenue by holding exchange-based tokens or trading them directly. Due to their high fluctuation rate, exchange-based tokens are best suited for active trading, including margin trading. These tokens are also worth holding because the token economy model predicts their value will increase over time. One of the approaches to diversifying your portfolio with exchange-based tokens is to use trading software with a high success score like Bitcoin Motion.
The Governance Of Exchange-Based Tokens
Despite the pre-determined utility of exchange-based tokens, not everyone is particularly intended to provide users with extra benefits. There’s no doubt that it’s for the future development of the exchange platform, but several crypto exchange platforms have already accepted native tokens as a mechanism for governance. Alternatively, exchange-based tokens were developed for the sole purpose of letting users have voting rights and exclusivity to some benefits.
While the use and functionality of the token are not as noticeable as others, decentralised exchange tokens, also known as governance tokens, are becoming a growing priority for Decentralised Exchanges looking to transition to fully community-run operations.
To Help Boost The Liquidity Rate
In crypto, liquidity refers to the capability with which assets can be converted, which significantly affects the financial market. It is also known as the availability of financial market trading activities. To put it another way, the more liquidity there is in the market, the smoother the market’s execution will be. And the more liquidity an investment asset has, the more conveniently it can be exchanged without a significant price impact. In the crypto space, this is known as Slippage.
Cryptocurrency exchanges utilise native tokens to incentivise users for every trading activity conducted on their platform, thereby increasing liquidity in the crypto market. One concept used for this is to offer native tokens based on each user’s trading volume, and another option is to start a staking program.
Multi-Party Trust
Regardless of the type of digital currencies offered by the exchange, it can be used to build a good reputation among users and market regulators. Consider offering stablecoins pegged to the US dollar, which incorporates the US dollar’s price stability and credit ratings, regulatory protections in the US, and the technological advantages of cryptocurrency.
What The Future Holds For Exchange-Based Tokens
Exchange-based tokens are a big feature of cryptocurrency exchanges, and new exchanges are expected to launch a native token in the coming years.
The benefits and characteristics of exchange-based tokens will keep improving and transforming in response to user needs and exchange regulatory oversight. The governance functionalities of these tokens will also assist the community in making decisions that will improve the exchange’s function.
Furthermore, token holders’ investment options in the exchange platform are a functionality shared by platforms with native crypto tokens. Most exchanges provide appealing annual percentage rates to crypto token holders on the platform. With that in mind, the Return Of Investment is projected to increase over time as usability and liquidity in the exchange improve.
