Pumping exchange-native tokens with fee discounts

The rise of cryptocurrency exchanges has given birth to a new asset class: exchange-native tokens. From Binance’s BNB to FTX’s now-defunct FTT, these tokens are issued by trading platforms as both utility chips and profit engines.

One of the most common—and controversial—strategies exchanges use to pump demand for their tokens is by linking them to trading fee discounts. On the surface, this looks like a loyalty reward. But in practice, it often serves as a powerful mechanism for inflating token demand, boosting prices, and enriching insiders long before retail realizes the risks.

1. What Are Exchange-Native Tokens?

Exchange-native tokens are cryptocurrencies created and controlled by trading platforms. They typically promise:

Reduced trading fees when held or used to pay fees.
Exclusive access to token sales, staking, or promotions.
Governance rights over certain exchange decisions.
Burn or buyback programs funded by exchange revenue.

Examples include:

BNB (Binance Coin) – originally a utility token, now powering the BNB Chain ecosystem.
FTT (FTX Token) – once central to FTX’s empire, later revealed as overleveraged collateral.
HT (Huobi Token), OKB (OKX Token), KCS (KuCoin Token).

2. The Fee Discount Mechanism

Most major exchanges structure their tokens around fee discounts:

Holding incentive: Users who hold a minimum amount of the token receive reduced trading fees.
Payment incentive: Users who pay fees directly with the token receive further discounts.
Tiered systems: Higher token balances unlock deeper discounts and VIP perks.

This ties the token’s demand not to its intrinsic utility, but to ongoing trading activity.

3. How Fee Discounts Pump Tokens

The fee discount model creates a circular demand loop:

Traders buy the token to lower fees.
The increased demand drives up token price.
Rising token value encourages holding, reducing circulating supply.
The exchange advertises the “success” of its token, attracting new traders.

This system doesn’t just create utility—it manufactures price pressure tied to exchange growth.

4. Case Study: Binance’s BNB

BNB is the most successful example of this model:

Initially sold as a token for 50% fee discounts.
Gradually integrated into launchpads, staking, and the BNB Chain.
Subject to quarterly burns tied to Binance’s revenue, reinforcing scarcity.

The combination of fee discounts and additional use cases pumped BNB from cents in 2017 to hundreds of dollars by 2021, making it a top-5 cryptocurrency.

5. Case Study: FTX’s FTT

FTT followed a similar model:

Offered trading fee discounts for holders.
Granted access to IEOs (Initial Exchange Offerings) and VIP perks.
Backed by aggressive buybacks and burns.

But unlike BNB, FTT’s value was heavily propped up by FTX and Alameda Research using it as collateral. When confidence cracked, the token collapsed—taking the exchange down with it.

FTT’s rise and fall highlighted the danger of exchanges pumping their own tokens without adequate safeguards.

6. Why It’s Controversial

a) Artificial Demand

Fee discounts force traders to buy tokens to remain competitive. Demand is not organic—it’s manufactured.

b) Centralized Control

Exchanges act as both issuer and primary market maker, controlling supply and price dynamics.

c) Insider Advantage

Founders and early investors often hold massive allocations, benefiting disproportionately from pumps.

d) Systemic Risk

If an exchange fails, its token’s value collapses, wiping out retail holders—as FTT demonstrated.

7. The Psychology of Traders

Exchanges leverage trader psychology to pump tokens:

Fear of overpaying: No one wants to pay higher fees than competitors.
Perceived loyalty: Holding the token feels like joining an exclusive club.
FOMO: Rising token prices reinforce the belief it’s a safe bet.
Gamification: Tiered fee discounts mimic airline frequent-flyer programs, creating a “status chase.”

What looks like a utility perk is really a behavioral funnel designed to create token demand.

8. Beyond Fee Discounts

Exchanges extend the model further by attaching token utility to:

Launchpad access: Only token holders can buy into new listings.
Staking programs: Locking tokens for yield reduces supply.
VIP clubs: High balances unlock private services or events.
Burn mechanics: Tokens are destroyed periodically to maintain scarcity.

Each new feature strengthens the pump cycle by expanding token demand beyond fees.

9. Regulatory Concerns

Regulators view exchange-native tokens with suspicion:

Unregistered securities? Fee discount tokens may qualify as securities under Howey tests.
Conflict of interest: Exchanges both issue and promote tokens they profit from.
Market manipulation: Controlled burns and opaque treasury policies allow price engineering.
Systemic contagion: A token collapse (like FTT) can destabilize entire markets.

This has led to increased scrutiny in the U.S., EU, and Asia.

10. The Future of Fee-Linked Tokens

Despite risks, fee-linked tokens are unlikely to disappear. Instead, we may see:

More regulation: Mandating disclosure of supply, treasury management, and insider holdings.
Hybrid models: Tokens tied not just to fees but also to decentralized ecosystems.
Exchange competition: Platforms without native tokens may market themselves as “neutral” alternatives.
Community pressure: Retail traders demanding transparency around burns and insider allocations.

BNB’s survival and FTT’s implosion illustrate two possible futures—sustainable integration versus speculative collapse.

11. Lessons for Traders

If you’re considering holding exchange-native tokens, keep in mind:

Fee discounts are bait. The real profit comes from early insider positioning.
No intrinsic value. Token prices are tied to exchange health.
Diversify. Don’t overexpose your portfolio to one exchange ecosystem.
Watch regulatory risk. Governments may crack down on fee-linked utility tokens.

As always in crypto: if demand is engineered, sustainability is questionable.

Conclusion

Exchanges pumping their native tokens with fee discounts is one of the cleverest forms of engineered demand in crypto. While marketed as a way to reward loyal users, the reality is that these tokens often serve as profit engines for insiders and centralizing forces for exchanges.

The strategy has built fortunes (BNB) and destroyed empires (FTT). For traders and regulators alike, the lesson is clear: fee-linked tokens may look like harmless utility chips, but they are also one of the most powerful—and risky—pump mechanisms in the digital asset world.