“Given their position as aggregators of capital and their interest in building both traditional and crypto-native financial services, the exchanges are perfectly positioned to catalyze the adoption of Open Finance.” – Kyle Samani
Blurring the lines
Open Finance lacks a generally agreed upon unambiguous definition but most would agree that the core requirement is permissionless access. This means that no company can act as a gatekeeper for who can or can’t participate. Centralized exchanges fall outside this categorization since they have full control over who enters their platform. That being said, this may not always be the case as the exact degree to which these exchanges are “centralized” is changing.
This shift has been largely due to the introduction of native exchange tokens. These tokens have been used to raise money, not by offering any explicit rights as we see in debt or equity offerings, but rather a hodgepodge of “utility” functions on the exchange. Utility tokens exist in capital stack purgatory as there is no claim to cash flows, no liquidation rights in the event of bankruptcy, and no real legal obligation to do, well anything. Yet, exchange tokens have accrued over $5 billion in value.
So what’s going on here?
The underlying value in exchange tokens
Every exchange token is different in its own right, but there are some commonalities amongst them in that they can create tangible value for holders.
For example, tokens that offer trading discounts can save on fees. A trader would be willing to purchase a token at price x as long as the discounts outweigh the purchase cost of x. More specifically, x is the purchase price plus the opportunity cost of capital minus the price the token can be sold at in the future.