A cryptocurrency exchange is one of the most vital platforms for crypto investing. These exchanges utilise their native tokens to fulfil many purposes like increasing liquidity, reducing trade fees, governing blockchains, etc. Experts call them as exchange tokens. 

If you are planning to invest in crypto or are a cryptocurrency investor, knowing about exchange tokens and how they function will help you make informed decisions while transacting on an exchange platform. 

Here’s more about exchange tokens. 

Exchange tokens: A detailed overview

An exchange token is a digital asset that a cryptocurrency exchange issues for various reasons. They ensure that the exchange runs smoothly and provides incentives to active users. 

These tokens also function as utility tokens that crypto exchange ecosystems use for their funding and hedge risk during a market fall. However, not every cryptocurrency exchange offers its own exchange token. It depends on the exchange’s goal whether or not they will release their own native token. 

Exchange tokens have the following use cases:

• You can use exchange tokens to pay the listing, withdrawal and deposit fees. This is a great benefit as you do not have to use other cryptocurrencies or fiat to pay for the same. 
• Exchange tokens also provide users with voting rights, thereby decentralising the platform. This gives token users a significant governance role and the authority to decide on budget usage and development of the platform. 

Advantages of exchange tokens

Exchange tokens provide its users with the following benefits:

• Liquidity

A cryptocurrency exchange leverages exchange tokens as an incentive to bring liquidity to the platform. They generally offer traders a volume of exchange tokens equal to their trading volume. The more liquidity on the platform, the more traders will be able to smoothly exchange their assets without a slippage (substantial change in price while trading). 

• Discounts on fees

Whenever you transact on an exchange platform, it charges a certain fee for its services. These exchange ecosystems offer fee discounts via exchange tokens to build customer loyalty and incentivise trades. 

Generally, when you use an exchange token, you will receive a discount while paying the exchange fees. Some exchange ecosystems give you tiered fee discounts depending on the number of exchange tokens you hold in your crypto wallet. 

These actions incentivise users to invest more funds on the exchange platform. This way, they can avail future benefits and increase the demand for the exchange’s native token. Both decentralised and centralised exchanges provide their users with such discount benefits.

• Governance

Many crypto exchanges distribute exchange tokens among their users to provide governing rights of the platform. They are known as governance tokens. These exchange tokens offer their holders voting rights or exclusive privileges. 

Governance tokens help to achieve decisions on the exchange platform's future in a decentralised manner. They have become an important aspect of decentralised exchanges that want to function entirely as community-run operations. 

Apart from the above, some exchange tokens provide additional benefits like interest payments, personalised investment consultations, collateral in future trades, marginal position leverage and improved customer service. However, please remember that these perks are for people who hold a substantial amount of tokens. 

How to get exchange tokens?

Most cryptocurrency exchange platforms distribute their exchange tokens through an Initial Exchange Offering (IEO). They generally do it for the crowdfunding of their project.  

Another way in which crypto exchange users may get exchange tokens is through airdrops. It is when cryptocurrency exchange platforms distribute free tokens to their users for free or a simple promotional activity in exchange, like creating social media posts. Additionally, you can also buy these exchange tokens in the way you buy and sell cryptocurrencies. 

Please remember that while transferring exchange tokens to an external wallet, always check whether it supports the exchange token.  

Top 15 exchange tokens

The top 15 exchange tokens based on market cap are mentioned in the table below.

Exchange tokens for portfolio diversification

If you are a crypto investor, you probably know the importance of portfolio diversification for risk management. Investing in exchange tokens can be an excellent way to diversify your investments. 

Due to their low correlation with major crypto coins, they allow you to profit even during market correction times. During BTC price falls and bears markets, their prices can rise, enabling you to earn money by holding or trading them with other users. 

Due to their rising value, many investors ponder whether exchange tokens can be an excellent long-term investment option. The role that an exchange token plays within a platform has a direct influence on its value and its potential to rise over time.  

Moreover, due to the volatility of exchange tokens, they are a suitable long-term investment. You can also use them for active and margin trading. Apart from its utility, the value and role of exchange tokens as a potent investment option is rising with time. If you want to try your hand at exchange tokens, there are many reliable cryptocurrency exchanges, like Binance, Coinsbit, EXMO, etc., that you can opt for.