Native alternate tokens have exploded in value in current months, alongside the broader cryptocurrency markets, altering the narrative for what these tokens have been initially meant for.
Bitcoin (BTC), Ether (ETH) and different cryptocurrencies have seen exponential development over the previous six months. Partially, this is because of main institutional traders lastly coming into the markets in a significant method. Grayscale Investments, MicroStrategy and Tesla have been a few of the largest names to make main acquisitions of Bitcoin and different cryptocurrencies, resulting in new all-time highs in values.
This has had a knock-on effect for varied tokens that both energy cryptocurrency exchanges, or — like Ethereum’s fuel fees for processing transactions — act because the gas for the underlying blockchain.
Exchanges that use their very own tokens to energy their ecosystems have additionally seen their native cryptocurrencies growth in worth. Two prime examples of this are Binance’s native Binance Coin (BNB) token and decentralized finance platform Uniswap’s UNI token and OKEx alternate token, the OKB.
BNB noticed an increase in worth from $38 per token on Jan. 1 to an all-time excessive of $335 on Feb. 19. Likewise, UNI went from $4.90 per token on Jan. 1 to only over $35 on March 22, additionally an all-time excessive. In the meantime, for the reason that begin of the 12 months, OKB tripled in valuation from round $7 to over $21 by Feb. 22.
Earlier than delving additional into the worth appreciation of those cryptocurrencies although, let’s revisit the fundamentals of alternate tokens.
What’s an alternate token?
Cryptocurrency alternate tokens fulfill quite a lot of necessary roles for the platforms they function on.
For one, they will improve each liquidity and buying and selling exercise. Liquidity on an alternate refers back to the capability of a token to be transformed to a different cryptocurrency or fiat forex. Native alternate tokens can be utilized as an incentive to extend liquidity on the alternate by allocating rewards for buying and selling volumes, or for customers that stake tokens.
Trade tokens are additionally used to offer payment reductions for merchants and customers. Usually, this includes customers receiving reductions when paying charges utilizing the cryptocurrency, whether or not on a centralized or decentralized alternate.
Some cryptocurrencies act because the gas that powers the alternate, by permitting customers to take part in governance mechanisms (like voting) or by providing unique advantages to holders.
Take BNB, for instance. It’s the means for transactions on Binance Chain, whereas additionally getting used to pay transaction charges on the alternate.
Have alternate tokens change into funding?
Although they serve quite a lot of functions on their respective platforms, their speedy rise in worth throughout the ecosystem begs the query of whether or not alternate tokens at the moment are changing into a viable funding for customers.
The character of a given token and the position it performs inside its alternate ecosystem even have an affect on its worth and its potential to understand over time. Todd Crosland, founder and CEO of cryptocurrency alternate CoinZoom, advised Cointelegraph, “There was a commencement of kinds from utilizing alternate tokens solely for buying and selling payment reductions and different advantages, to the tangible worth.”
Added advantages have additionally elevated the worth of those varied tokens via rewards, reductions and different incentives, as Crosland defined in his correspondence with Cointelegraph.
In keeping with Jonathan Leong, CEO of cryptocurrency alternate BTSE, the utility of alternate tokens like BNB and UNI is a driving power behind their appreciation in worth. Within the case of BNB, Leong highlighted the truth that the alternate token additionally grew to become a utility token with the launch of Binance Chain. Primarily, this turned BNB tokens into the equal of Ethereum’s ETH tokens which are used to pay for fuel charges.
Whereas there appears to be a rising sentiment that outstanding alternate tokens might change into viable long-term investments, these tokens are additionally topic to the identical volatility that the likes of Bitcoin and different outstanding cryptocurrencies have change into infamous for. As Leong highlighted in his feedback to Cointelegraph:
“The volatility may be defined as a result of issues are actually mainstreaming and the utility of DeFi is actually coming into its personal and persons are seeing the chances with issues like Uniswap, Curve, Aave and Saffron and all these different issues. I feel that’s why there’s an enormous surge, there’s some huge cash coming in — it’s the bull cycle. This can be a extremely speculative new expertise which can also clarify the volatility.”
A spokesperson from Binance outlined the alternate’s perception that the worth of BNB will proceed to develop as extra purposes and initiatives start working on the Binance Good Chain: “BNB’s use circumstances have expanded to a whole bunch of purposes on quite a few platforms and initiatives throughout the crypto ecosystem.” The alternate consultant added additional:
“BNB is utilized to pay transaction charges on Binance.com, Binance DEX, Binance Chain and the community-driven BSC. BNB can be used on a number of DeFi platforms constructed on BSC that present monetary funds options. The extra individuals use BSC, the extra utility BNB could have, and therefore extra worth BNB could have.”
The Binance spokesperson nonetheless declined to touch upon whether or not the agency feels that the rise in worth of BNB tokens has exceeded expectations.
As cryptocurrency markets proceed to carry the positive factors which were realized in current months, alternate tokens are additionally permitting customers to carry worth on these platforms, evident by their market capitalization. BNB’s market cap sits at slightly below $40 billion, which leaves it nearly on par with the overall capitalization of the Tether (USDT) token.