You’ve probably heard about crypto exchanges like Binance, KuCoin, Crypto.com, HTX , and others that sell tokens (e.g., BNB, KCS, CRO, and HT).
Are these tokens worth buying? Can you make money from them?
These tokens offer perks like discounts on trading fees and access to exclusive benefits or promotions. On top of that, their prices sometimes go up a lot, giving you opportunities to sell your tokens for a profit.
At the same time, exchanges control those tokens outright.
Unlike Bitcoin or other cryptocurrencies that are governed by immutable blockchains and computer protocols that no single entity can change, exchange tokens function more like frequent flier miles or cash-back rewards. Exchanges can change the terms, supply, function, and benefits at any time without notice.
Some exchanges sell those tokens to fund operations, cover liabilities, and line executives’ pockets. It’s a cheap way to raise money and easier than generating profit from operations.
When you buy those tokens, you’re essentially subsidizing the exchange.
Many exchanges hold some tokens as reserves or collateral for loans. FTX did this with its FTT token.
In fact, FTX counted its token as an asset on its balance sheet while using its trading arm, Alameda, to prop up the price.
Imagine General Motors creating one billion GM tokens, selling a single token to a Buick dealer for $100, then claiming to have $100 billion in assets.
How do you know your exchange isn’t doing the same thing?
With DeFi protocols, you don’t even need a trading arm. You simply need to cover your tracks.
With Bitcoin, you can run a node and trace everything to the genesis block. Exchanges can’t even verify the number of circulating tokens, much less unravel the maze of transactions you’ll find on their blockchains.
While you can benefit from token rewards and make money trading these tokens, set realistic expectations — even if the exchange touts a lofty ambition.
For example, Bitfinex frames its LEO token as “a token designed to empower the Bitfinex community.” Crypto.com says CRO is the “trading, payment, and financial services token for a cross-asset intermediary settlement layer.”
Gate and Binance built decentralized financial platforms around their tokens, ostensibly with community governance.
In reality, the exchanges still dictate the issuance, function, and utility. You get no equity in the business nor any claim on its assets. You have to trust that the exchanges make good on their word and stay in business.
Crypto doesn’t have the best track record on any of those things.
Exchange tokens are crypto’s version of Dave and Buster’s tokens. Treat them as such.
Few buy Dave & Buster’s tokens because they expect to make money. They enjoy playing games and winning prizes. They don’t treat the tokens as investments. Neither should you.
Sure, if the token price goes up, you can sell for profit — but you can say that for every cryptocurrency.
There’s nothing special about any token simply because an exchange slaps its logo on the ticker. Enjoy whatever perks the exchange gives you. Trade the tokens if you’d like.
I won’t be joining you.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top Bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Tealfeed.
