What is CEX Token? Things to note when users invest in CEX Token
What is CEX Token? Learn about the token pricing of typical CEXs (Binance, FTX) and some things to keep in mind when investing in CEX Tokens.
CEX token is one of the token groups with the highest ROI in the 2020 bull run, in today’s article I will share some key points about CEX Token and what to keep in mind when investing in this group of tokens.
Overview of CEX and CEX Token
What is a Centralized Exchange (CEX)?
CEX, also known as a centralized exchange (Centralized Exchanges), is simply an exchange that is run and managed on centralized servers.
In Crypto, a CEX has a basic function of providing a place to trade, buy & sell Cryptocurrencies, additional features of CEX can be mentioned as trading of Crypto related derivatives, NFT marketplace , OTC,…
Features of Centralized Exchange (CEX)
CEXs typically use the IOU (I Owe You (IOU) / Debit Note) type of credit system. When a user makes a deposit to CEX, that user’s account will be credited with the corresponding balance, when the user trades, the receipts/expenditures will be recorded to the user’s account, a process usually no direct account migration.
In short, the characteristic of a CEX is that it controls deposits and manages user login data, such as email addresses and passwords, KYC documents.
What is CEX Token?
Centralized Exchange Token can be understood as the foundation token of CEX tokens, created for the purpose of providing certain benefits in the system to their owners, this is also a common feature of CEX Token.
“CEX Tokens are usually Utility Tokens – providing Holders with certain benefits in their ecosystem.”
Some of the benefits of CEX Tokens that can be followed are (these benefits may vary from CEX to CEX):
- Transaction fee discount.
- Get Airdrops.
- Free withdrawals.
- Join IEOs.
Some outstanding CEX Tokens in the Crypto market:
- Binance’s BNB.
- OKB by OKEx.
- FTT’s FTX.
- Crypto.com’s CRO.
- Huobi’s HT.
Analysis & Valuation of CEX Token
There are quite a few CEX exchanges on the market, in this article, I will choose two outstanding CEX exchanges, FTX, Binance and their Token for analysis.
BNB & Binance exchange
Binance was founded in 2017 by CZ, talking about CEX, the main product of Binance at the moment is Crypto to crypto exchange, derivative products (Perp, margin, Option, Leveraged token). Binance is also considered the largest Crypto exchange in the market today.
Binance Coin (BNB) is the native token of the Binance exchange, BNB was launched in July 2017 after raising $15M from the ICO.
Use case of BNB
BNB is a Utility token that provides certain benefits to Holders. Within the scope of the Binance exchange, BNB has several prominent use cases:
Outside the scope of the Binance exchange, BNB is also used to pay transaction fees, pay for goods, and participate in DeFi services on the Binance Smart Chain ecosystem.
FTT & FTX
FTX exchange was founded in 2019 by Alameda Research, the success of FTX is often associated with the leader of FTX, Sam Bankman-Fried (SBF).
As for CEX, FTX’s main products are derivative products (Perp, margin, Option, Leveraged token). Although born late, FTX has quickly risen to become one of the largest CEX exchanges in the space (best performing CEX in 2020).
FTX Token (FTT) is the Utility token of the FTX exchange, it provides certain benefits to Holders, there is a slight difference between the benefits of Holders and Stakers. Within the scope of the FTX exchange, FTT has the following prominent use cases:
The use cases of FTT outside of the FTX exchange are not prominent at the moment.
BNB & FTT . Valuation
If only considered within the utility token of a CEX exchange, the value of BNB & FTT comes from 2 main sources:
The first source, the benefits that holding BNB & FTT tokens brings:
- Reduced transaction fees based on the holder’s BNB & FTT volume and trading volume.
- Free withdrawals (FTT Staker only).
- BNB & FTT can be used as collateral when trading Margin & Future.
- Tickets to IEO and chance to win IEO.
- And other use cases.
The second source, the value accumulated from burning BNB & FTT is based on the total transaction fees collected from the Binance & FTX exchange, the table below details the relevant information:
Although, the end result is all “Token Burn”, but the different implementations leading to the effect of the “Token Burn” incident will be slightly different. In the case of Binance & FTX, buying FTT directly from the FTX secondary market will have a more or less positive effect on the price of the FTT token than Binance’s way of doing it.
In summary, for BNB & FTT Token in particular and CEX Tokens in general, the value of these CEX Tokens will be measured by:
- The value of the benefits of holding that Token (discounted transaction fees, future airdrops, IEO tickets,…), the benefits brought to each person may not be the same, depending on position and usage needs of each user.
- Model & how to redistribute part of platform revenue to Token Holders. For example, in the case of FTX, the exchange uses part of the revenue generated by FTX to buy back FTT in the market and take it out of circulation.
Investing in CEX Token, what should users care about?
CEX Token becomes Ecosystem Token
Exchange is one of the business models with strong network effects, where having liquidity attracts more liquidity, it doesn’t matter if that liquidity comes from CeFi (centralized finance) or DeFi ( decentralized finance).
Although, DeFi promises great growth potential in the future, but currently, they have many limitations, mostly coming from infrastructure.
The Crypto market is inherently less restrictive and driven by high speculation, so usefulness is at the forefront, CEXs can completely clone a version of CeDeFi that works faster, cheaper and more efficiently. .
In the case of Binance, BNB started out as a Utility Token used within the scope of the Binance exchange with the primary function of trading fee discounts, but over time, as Binance grew larger, the range of products launch went beyond the scope of a CEX (Binance Chain, Binance Smart Chain). BNB from the Utility token of Binance exchange, it becomes the Utility of the Binance ecosystem.
For example: In addition to the benefits provided on Binance exchange, BNB is also used to pay transaction fees on Binance Chain and BSC, can also use BNB to participate in DeFi on BSC,…
This is the development trend of many CEXs, by expanding the surrounding ecosystem, CEX Tokens accumulate a part of the value by a broader ecosystem whether directly or indirectly – the utility token of both. Ecosystem.
Token Holders >< Shareholders
In particular about CEX, they have a dilemma that is the division of benefits between Token holders and Shareholders.
CEXs like FTX and Huobi, they are using the Buyback & Burn token model based on the revenue and profit earned from CEX’s business, this model creates a correlation between the demand for CEX and the source. supply CEX Token, indirectly enhancing the value of CEX Token.
In the short term, an increase in value does not mean that the token price will definitely increase, but in the long term, the price will move in value.
But you should know that the above is not a sure guarantee, CEX Token Holders has no right to interfere in the governance process, one fine day, the heads of FTX, Houbi will make a decision. Stop the buyback & burn process, with a lengthy explanation, whether you support or oppose it, it still happens, it’s not up to you to decide.
On the contrary, Shareholders have legitimate business ownership rights (CEX) under the law, they have the right to influence management decisions to benefit them, of course this is not absolute, when a person has just As both shareholders and Token holders, they will try to make decisions that benefit both groups.
I will summarize one main point of the article:
- Centralized Exchanges (aka CEX) is described as a web application that runs on centralized servers.
- CEX tokens are native tokens of CEXs, created for the purpose of providing certain benefits to holders and this is also their main function.
- At the present time, the value of 1 CEX token is determined by 2 main factors: The value of the benefits of holding that Token and the model & way of redistributing a part of the revenue from the operation. exchange business for Token Holders.
- Over time, the utility that a CEX token brings has gone beyond the scope of the CEX exchange and expanded to all the products that the CEX exchange develops.
- The benefits of Token holders and Shareholders are sometimes opposite, it is necessary to carefully consider the distribution of benefits between Token holders and Shareholders before making an investment decision.
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