Exchange token valuations: Understanding how BNB, UNI, FTX, and SUSHI are placed (2024)

• Based on Binance’s trading volumes, here’s an interesting fair value estimate of other exchange tokens.
• Uniswap (UNI) is trading at a 36 percent premium while Sushiswap (SUSHI) is trading at a 25 percent discount.

Exchange tokens have played a critical role in ensuring market liquidity and swift trades on trading platforms. However, some exchange tokens have gained solid traction recently while also gaining significant market share.

Over the last year, Binance Coin (BNB) is one such exchange token delivering solid performance. For the past couple of months, it has cemented its position among the top five cryptocurrencies by market cap.

So how does Binance coin (BNB) manage to draw these valuations? Many traders justify the BNB tokenomics by comparing it with the trading volumes on the Binance exchange and using it as a proxy measure to cite demand. But then, there’s more to it than what meets the eye!

Binance introduced its BNB token burning mechanism back in April 2019. Before Ethereum (ETH) launched the EIP-1559 protocol with its London Hardfork last month which introduced a similar protocol.

As per the initial whitepaper of BNB, Binance would purchase 20 percent of the exchange profits in BNB tokens via a “repurchasing plan”. However, Binance scrapped it later. But 60 million BNB tokens have never been in circulation. These excess tokens are meant for burning to prevent any inflationary pressure on BNB and keep the gas costs low.

Moreover, apart from just the trading fee rebates, BNB serves as the primary asset of the Binance Smart Chain (BSC). Thus, it captures a significant portion of the total value locked (TVL) on the BSC smart contracts. BNB finds a decent demand on decentralized exchanges (DEX) thereby further maintaining a perpetual demand on the network.

Does the question arise whether if analysts should discount BNB’s value by 50 percent in comparison to other exchanges?

Looking at other crypto exchange tokens

Apart from Binance Coin (BNB), other exchange tokens follow an inflationary model, meaning the issuance rates of such tokens over a period of time are very high. For e.g. the Ethereum-based decentralized exchange (DEX) Uniswap has a total of 611 million native UNI tokens in circulation. This number is likely to reach 1.14 billion over the next decade.

Uniswap’s UNI tokens have an exclusive utility for the spot markets averaging at $1.63 billion daily volumes. On the other hand, Binance caters to $24.3 billion in daily trading volumes. This is without factoring in the trading in the derivatives market.

Now, the Binance Coin (BNB) has a total valuation of $78 billion which majorly factors in the exchange’s trading volumes. Now, with Uniswap having 93 percnt lower volume than BNB, its fair valuations estimate stands at $10.3 billion. This is 36 percent lower than the $18 billion that UNI currently pegs.

Let’s take a look at other exchanges using the 50 percent methodology of the BNB market cap. Centralized exchange FTX amasses $1.7 billion in daily trading volume, including that of derivatives markets. Considering the derivatives markets, Binance’s trading volumes shoot to $54 billion. Considering FTX’s ~97 peercent lower volumes, FTX’s valuations stand at $4.8 billion, which is 11 percent lower than the existing valuations.

On the other hand, decentralized exchange (DEX) SushiSwap aggregates a daily trading volume of $305 million. Considering Binance’s spot-only data of $24.3 billion, the same estimates yield SUSHI valuations at $1.92 billion. This is 33 percent higher than the current numbers.