Factors influencing tokens of cryptocurrency exchanges, looking at Binance Coin (BNB) trends from the BIS report

The Bank for International Settlements (BIS) has released a report on exchange tokens used by cryptocurrency exchanges, stating that these tokens are a primary source of funding for cryptocurrency exchanges and a core component of the cryptocurrency industry. This article quotes some data from the report and uses Binance Coin (BNB) as an example to explain the factors influencing the price of BNB.

Total Market Value of Cryptocurrency Exchange Tokens Reaches Millions of Dollars

Cryptocurrency exchange tokens are assets issued by cryptocurrency exchanges based on blockchain technology. These tokens may offer holders discounts on trading fees and access to certain platform services. They are a major source of funding for cryptocurrency exchanges, with a current total market value of approximately $100 billion, accounting for one-tenth of the market value of Bitcoin, highlighting their importance in the cryptocurrency field.

The BIS report compiled the main cryptocurrency exchange tokens in the table below, but the data statistics are up to the end of 2022, so the market values have already fluctuated significantly. For example, Binance's BNB market value has reached $84.2 billion instead of $39.3 billion, while FTX's FTT has plummeted to $450 million due to bankruptcy and the decision not to compensate customers with FTT tokens.

Buybacks are an Important Factor in Token Prices

The table above details the uses, goals, and funding sources of various exchange tokens, using complex mathematical models to evaluate token prices. This includes factors such as user demand, investment demand, and common commitments by exchanges to repurchase tokens. The report emphasizes the importance of buybacks on token prices.

The report suggests that cryptocurrency exchange tokens are a crucial source of funding for centralized cryptocurrency exchanges, and buyback commitments can increase the amount of funds raised through token sales. However, the additional amount raised is always lower than the discounted cost of buyback commitments, and such buyback commitments could potentially be exploited by whales or small groups of cooperating investors, damaging the interests of platform owners.

What Does "Buyback" Represent in the Crypto Space?

Using the largest market cap token, BNB, as an example, the report attempts to explain the factors influencing BNB prices. The report references Binance's old whitepaper, where "buyback" actually means destruction:

We will buy back BNB with 20% of profits and destroy them until 100 million BNB, representing 50% of total supply, are burned.

However, this approach has been criticized for its "security-like" nature, posing potential legal risks. Binance later updated the whitepaper, with the new version of destruction described as "based on trading volume," without specifying the exact ratio.

Binance announced the burning of nearly $600 million in the fifteenth quarter. How does this reflect the first-quarter earnings? Why isn't BNB rising?

Can Buybacks Really Boost Token Prices?

In traditional stock markets, buying back company stocks reduces the number of shares in circulation, typically leading to a rise in stock prices. Whether Binance's buyback commitment can meet people's expectations for BNB remains to be seen.

According to previous reports, Larry Cermak, Research Director at The Block, once stated that Binance's burning is not as crucial.

What Binance burns are not BNB bought back from the market but rather BNB held in the token treasury, which, although part of the total token issuance, has never been circulated.

According to Binance's website, Binance has burned 56.06 million BNB, accounting for 28% of the total supply, with approximately 146 million BNB still circulating outside.

Binance Launchpool Successfully Boosts BNB Token Price

BNB reached its all-time high of $690.93 in May 2021 during the late DeFi Summer, NFT, and GameFi craze, before experiencing a correction starting in November of the same year. Despite facing several significant events from mid-2022 to early 2024, BNB has maintained a stable range of $200 to $300, becoming one of the most stable cryptocurrencies in the market.

In 2024, Binance aggressively promoted the new coin mining Launchpool activity, where customers could stake BNB and FDUSD stablecoins to earn new coins listed on Binance. The staking activity was primarily 80% BNB. Each round of the activity attracted 14 to 15 million BNB participants.

Binance Sheds Its Shadow! BNB Surpasses $500 After Two Years, Is Launchpool Rebuilding Momentum?

BNB officially took off at the end of February 2024 and broke its all-time high in June, reaching $721.

Additionally, Binance recently launched the HODLer airdrop program, where users holding BNB and purchasing Binance Earn products could receive airdropped tokens based on their holdings. This program rewards customers for holding BNB long-term.

Binance's HODLer Airdrop Program Launches First Project "Banana Gun," Token Surges 38%

From this, it can be seen that apart from the promotion of reduced trading fees and buybacks, the credibility of the exchange itself, the introduction of activities, and promotions also play a significant role in influencing token prices. Binance's platform token BNB, as one of the earliest and still successful exchange platform tokens, has experienced market praise and skepticism several times, seemingly solidifying its value and consolidating its market leadership position once again this year.