78 Shares

In many ways, exchange tokens are among the most straightforward token models out there. The Binance Coin ( BNB ) gives you a 50% discount on your Binance transaction fees.

To compare this with something a bit more tangible, many cities have a pretty similar system for public transportation. Buy a card with 10 metro rides up front and you’ll get a 10% discount. The most obvious difference between your metro card and BNB tokens in your wallet is that BNBs have a capped total supply.

This means the tokens can appreciate – namely when demand for the tokens increases. An increase in demand for metro tickets on the other hand, would simply be met by a proportional increase in supply of new tickets.

But how can we quantify the value of exchange tokens? And what other token utility models exist for exchange tokens, beyond a simple discount model?

Let’s have a look at three different exchange tokens: Binance Coin ( BNB ), Huobi Token ( HT ), and KuCoin Shares (KCS). The table below summarizes the main utilities and appreciation mechanisms for these tokens.

Binance (BNB) Huobi (HT) KuCoin (KCS) Discount Year 1: 50% Year 2: 25% Year 3: 12.5% Year 4: 6.75% Up to 50% Up to 30% Quarterly Buyback – 20% of net profit – 100% burned – Continues until 100MM BNB are burned (50% of total supply) – 20% of revenues – 100% held in “Huobi User Protection Fund” – 10% of net profit – 100% burned – Continues until 100MM KCS are burned (50% of total supply) Airdrops Some Newly Listed Tokens (e.g. BCPT, ENJ) Some Newly Listed Tokens (e.g. PORTAL) 50% of fees paid daily to KCS holders Voting – – Vote for listing – 100% refunded – Airdrops for winning votes – Vote for listing – 100% refunded

Now let’s look at some of the hard metrics for these three exchange tokens:

May 28, 2018 Binance (BNB) Huobi (HT) KuCoin (KCS) Circulating Market Cap $1424 MM USD $191 MM USD $250 MM USD Total Market Cap $2455 MM USD $1912 MM USD $500 MM USD % of Tokens in Circulation 58% 10% 50% 24H Exchange Volume $1160 MM USD $1110 MM USD $41 MM USD

Circulating Market Cap = Token price x Tokens in circulation

Total Market Cap = Token price x Total tokens

% of Tokens in Circulation = Circulating Market Cap / Total Market Cap

24H Exchange Volume = Total Volume Transacted on the Exchange (not to be confused with the token transaction volume)

There’s a big difference in circulating market cap between these three exchange tokens. This is what you see listed as “market cap” on CoinMarketCap. Given the nature of these tokens, we find it more meaningful to compare the total market cap.

Edit: The original post used CoinMarketCap’s token supply numbers for KuCoin, but after being made aware of a discrepancy we’ve updated the post using KuCoin’s official numbers for KCS token supply. The overall conclusions in the analysis stay the same, but the difference KCS vs BNB/HT is now more pronounced.

A Useful Metric To Help Price Exchange Token Utility Models

In order to better understand how the market prices the different token utility models, let’s compute a variant of the network-value-to-transactions (NVT) ratio . Specifically we’ll divide the total market cap of the exchange token by the 24H exchange volume.

Since it’s not strictly speaking the NVT ratio, in order to avoid confusion, we’ll call this metric the token-value-to-exchange-volume (TVEV) ratio.

Here’s what the TVEV ratio looks like for Binance Coin (BNB) and Huobi Token (HT), since the start of 2018:

As you can see, Binance Coin (BNB) and Huobi Token (HT) have remarkably similar TVEV ratios, which lie mostly in the 1-2 range. If we add KuCoin Shares (KCS) though, we see that it’s a lot higher:

Using a logarithmic y-axis makes it a bit easier to see the trends:

What Makes KuCoin Different?

How do we explain the difference between KCS and the two other exchange tokens? There are two main explanations:

Utility: KuCoin’s token model, which includes regular airdrops to holders, might be perceived as more valuable than Binance and Huobi’s token models – i.e. the token has higher utility. Expectations: The market might be expecting a higher future growth in exchange volume from KuCoin than from Binance and Huobi.

Another thing to note is that both BNB and HT are currently at a peak – at least since the start of 2018 – but they’re still quite far from KuCoin’s levels.

If we zoom out a little further, we see that BNB had a very high TVEV in its first months of existence, so it’s not technically speaking an all-time high for BNB – but HT is currently at an all-time high plateau.

Note that we’ve smoothed out this graph with a 7-day moving average in order to put less emphasis on the day-to-day movement. Again a log-plot makes it easier to visualise all three in one graph.

Why Does the TVEV Ratio Matter?

So, why should we care about the TVEV ratio? In brief, the TVEV ratio might serve as a simple model in assessing whether or not an exchange token is priced fairly, considering the network it serves (i.e. the exchange).

Another way to visualize the data above, is by plotting a histogram based on the days so far in 2018. When doing this, we get a clearer sense of what a “normal” value for the TVEV ratio is, for each exchange token.

BNB and HT have historically had a TVEV ratio between 1 and 2, as mentioned above. Movements beyond these ranges should be relevant signals for crypto traders and investors.

KCS on the other hand has a very different distribution, and has historically had a TVEV ratio in the range of 9 – 15:

If we compute the median of these distributions, we find that for half of the days in 2018 so far, BNB’s TVEV ratio has been above ~1.4, HT’s ratio has been above ~1.5, and KCS’ ratio has been above 11.5.

Using the TVEV Ratio to Price the OKB tokens from OKEx

A few months ago, OKEx announced their own token: OKB , with a total supply of 1Bn. Currently, OKEx is among the biggest crypto exchange listed on CoinMarketCap in terms of volume with a 24H transaction volume of approximately $1.43Bn USD.

We can estimate what the total market cap of the OKB tokens “should be” using the TVEV ratio. When doing this, we’re making some strong assumptions. Perhaps most significantly, we’re assuming that the OKB tokens have approximately the same utility model as the tokens studied above.

If we use Binance’s current TVEV ratio of ~2.7, the total market cap for the OKB tokens should be TVEV = 2.7 * $1.43Bn USD = $3.86Bn USD. With 1Bn total OKB tokens, that means each token would be priced at $3.86 USD using the TVEV model. OKB was launched on OKEx on March 23rd 2018, and it’s currently trading at $3.7, so this estimate is quite close to its actual price.

Summary

To sum up, the TVEV ratio might be a simple way to assess the price of an exchange token – at least relative to other exchange tokens – as we’ve shown with Binance Coin (BNB), Huobi Token (HT), KuCoin (KCS), and finally OKEx (OKB).

Having said that, it’s important to consider the specific utilities of the different tokens, as illustrated with KuCoin Shares, which has consistently had a higher TVEV ratio than Binance Coin and Huobi Token.

In our next post on exchange tokens, we’ll look at decentralized exchanges, and we’ll show how the market seems to price decentralized tokens vastly higher than the centralized exchanges. Stay tuned.

Now, we’d love to hear from you. Would you like to have this metric calculated automatically in the CoinFi platform and have filters/alerts when it deviates from median valuation? If so, simply click to tweet below. If we receive 100 tweets, we will add this feature to our roadmap ! So let us know by tweeting away.

Caveat: Some past analyses have claimed that a large portion of the transaction volume on centralized exchanges is “wash trading.” We cannot confirm or deny this, but obviously, manipulation of transaction volume would heavily impact the TVEV numbers.

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