Since its inception, cryptocurrencies have been long accused of having too few actual use cases. Even when the likes of Ethereum or NEO blockchain became popular, many skeptics still question whether the native cryptocurrencies of these networks will actually have strong natural demand. It’s normal to ask such a question because typically, the use cases of these cryptocurrencies are not strong enough.
In many popular blockchain networks, there’s an imbalance between the use cases of the blockchain and the use cases of the native cryptocurrency of the same blockchain. For example, if there are more corporations issuing their own ERC20 tokens on top of Ethereum blockchain, it doesn’t mean there’ll be a big spike of natural demand for ETH itself. The corporations will just use a very small amount of ETHs to pay transaction fees and for smart contract transactions.
Of course, you can argue that Proof of Stake or Delegated Proof of Stake coins will always have natural demand (which I agree), but that’s not the point. The point is, will we have enough natural demand to create upward pressure on the market? Now that’s the tricky question.
As we all know, most crypto trading volumes on crypto exchanges at the moment were created by speculators or crypto traders themselves. They dictate the price. Can the natural demand of these same cryptocurrencies eventually dictate the price on the market? Now there are a lot of factors that could come into play before we can answer this question. Unfortunately, this is also exactly why a lot of people have doubts about the “true price” of these cryptocurrencies.
The Rise Of Crypto Exchange Tokens
Fortunately, the use cases of new cryptocurrencies have been much more diverse compared to the ones released before them. Since 2016, many new cryptocurrencies have been used for very specific use cases rather than just for “staking” or “transaction fees”. Some of these very specific crypto tokens are the native cryptocurrencies of the popular cryptocurrency exchanges.
Take a look at BNB (native cryptocurrency of Binance exchange), for an example of my point. BNB’s main appeal to the crypto audience is that it’s needed to get trading discount fees on Binance.com exchange. Not only that, but Binance also committed to buy back and burn BNB coins on the open market every quarter by using a certain percentage of the profits from the exchange.
By having these use cases, the natural demand always appreciates depending on how successful the crypto exchange is. When Binance has more profits, it would use more money to buy back BNBs on the open market and burn them. There’s enough “balance” between the demand for the product (Binance.com exchange) and the BNB coin (more natural demand for BNB when Binance.com has more profits).
BNB, of course, is not the only one. Many other crypto exchanges also have their own native crypto tokens. Huobi Global has HT, OKEx has OKB, Bitfinex has UNUS SED LEO, and so on. The success of Binance with its BNB has inspired other decent crypto exchanges to do the exact same thing, with often very similar use cases as well.
More Trading Volume, Higher Upward Pressure
The great thing about crypto exchange tokens is that they are not meant to be used for “cheap” transaction fees or “cheap” smart contract transactions. They are meant to correlate with the crypto exchange’s growth. As we all know, the trading volume on big crypto exchanges has been slowly growing in the past few years. As a result, these exchanges also have more profits to use to buyback and burn their own tokens.
For example, let’s say a crypto exchange ABC has a native token called ABCT. ABC promises to use 25% of its profits to buyback and burn ABCT every quarter. When ABC has a profit of $10 million, it would use $2.5 million to buyback and burn ABCT from the open market. However, if one day ABC gets a $100 million profit, it would use $25 million to buyback and burn ABCT. The difference is huge, and it will get better as the exchange itself gets more profitable.
That’s exactly why crypto exchange tokens are more lucrative for long-term investments. These tokens were created to naturally grow as there are more users for the product itself. There is a direct correlation between the success of the crypto exchange and its native crypto token. Something that you don’t find with standard blockchain networks.
Crypto Exchange Tokens Vs The Rest Of Crypto World
We come back to the original question of the article. Is it true that crypto exchange tokens have the best use cases? Well, other crypto tokens also have reasonable use cases, and the demand for these other cryptocurrencies might actually surpass the natural demand for crypto exchange tokens in the future. However, looking at how the situation is at the moment in the crypto space, we have to be honest with ourselves. Most of the volume still comes from crypto traders themselves.
Bitcoin, Ethereum, and others are not really used to pay for anything real in real life. I mean, sure, there are people literally using Bitcoin or Ethereum to pay for someone else’s service or to purchase goods. But the volume for these types of transactions is much smaller compared to the standard trading volume that’s being made on Binance or Bitfinex or other crypto exchanges. In other words, most people still use cryptocurrencies for speculation purposes.
So, looking at this situation, I must say that crypto exchanges have the best use cases at the moment. Thanks to the increasing amount of crypto trading all over the world, these crypto exchanges have become more successful as well. And as I have written above, when these crypto exchanges are more profitable, there are more profits to be used to buyback and burn their own tokens. This action surely creates more natural demand in the open market.
It doesn’t mean it will always stay that way, though. It’s actually possible that in the future, the likes of ETH, EOS, or TRX will have significantly bigger natural demand outside trading speculation. That’s the beauty of cryptocurrencies. You can never really predict its future, and you will never know which ones would be more profitable.