By Lisa Pauline Mattackal
(Reuters) – As soccer fever heats up for big tournaments in Europe and America, a small but lively part of the cryptoverse is taking center stage: fan tokens.
These are not your average digital assets, they are tokens issued by national teams or individual clubs that promise fans a tradable way to interact with their teams.
Activity in tokens linked to participating national teams has increased ahead of the Euro 2024 European soccer championship, which begins on Friday, and the Copa América in North and South America, which begins a week later.
The market value of the Chiliz cryptocurrency, the native currency of the Socios blockchain that hosts the majority of the largest fan tokens and therefore a broad indicator of the niche sector, has risen to over 1.07 billion dollars from about $687 million at the beginning of the year and is approaching levels last seen around the 2022 World Cup, according to data from CoinGecko.
Fan token trading volumes have also increased in recent months, recording more than $170 million on May 24, up from between $25 million and $57 million during most of January, according to Kaiko data. The total market value of listed fan tokens is around $413 million, CoinGecko data shows.
This summer of sport could be a key test for the still-nascent sector of fan tokens, which typically offer perks such as raffle entries, early access to tickets, discounts on merchandise or the ability to vote on minor decisions such as match songs.
Supporters praise the tokens as a rare example of real-world crypto utility, while critics highlight tensions between the stated purpose of the team's commitment and the speculative – and risky – nature of tradable assets.
A Chiliz spokesperson said the company's marketing was clear that “fan tokens are fan engagement tools and should be used as such.”
The price of Portugal's fan token has risen around 2% in the last 30 days to $2.94, while Argentina's token briefly hit its highest level since 2022 at $2.46, although both are still trading for below their peaks reached around the 2022 World Cup.
“There has been a significant increase in trading volumes, but we expect it to be short-lived,” said Jag Kooner, head of derivatives at Bitfinex, pointing to a drop in trading after the World Cup.
Many top football teams and sports stars promoted crypto assets, such as non-fungible tokens (NFTs) or fan tokens, to their followers during an earlier crypto boom in 2021, drawing the ire of critics who warned they could encourage financial speculation.
British lawmakers warned last year that the rise of NFTs in sport was putting fans at risk of financial harm and potentially damaging the reputations of clubs. Meanwhile, the England and Wales Football Supporters' Association has ruled out partnerships with fan tokens as “attempts to monetize trivial matters” or “inserting financial barriers to genuine fan participation.”
COMMITMENT VS SPECULATION
Changes in token volume and price don't always correspond to team performance, noted Adam McCarthy, research analyst at Kaiko.
“I see no evidence that holders benefit from holding these tokens as some sort of bet on the success of the respective teams,” he added.
A study analyzing fan token trading around major sporting events found that it often aligns with a “buy the rumor, sell the news” pattern found in traditional finance. Volumes and yields typically rise before big tournaments and then drop at the start of big matches.
On the other hand, another study found that fans who purchase tokens generally take advantage of the benefits offered by voting on club-related decisions.
“When fans have the opportunity to influence club decisions, they become substantially involved,” said Lennart Ante, who worked on both studies and is executive director of the Blockchain Research Lab.
“The dual nature of fan tokens as engagement tools and speculative assets creates a dichotomy,” Ante added. “The future of fan tokens could depend on how this distribution evolves between engagement-focused users and speculators.”
SLOW GROWTH EVEN THOUGH TOKENS APPEAR
The growth of tokens linked to clubs, rather than national teams, remains slow.
At the same time, the number of fan tokens has increased in recent years, given the ease of launching tokens on blockchains such as Bitfinex's Kooner. Chiliz said they had launched 80 fan tokens last year.
French football giant Paris Saint-Germain, which has a fan token, announced earlier this year that it would become a network validator for the Chiliz Chain blockchain, meaning it would manage and secure part of the chain. .
English team Watford FC recently offered a 10% stake in the club to investors and fans through digital stock tokens. Beyond equity ownership, other benefits include dinners with team members and private tours of training camps, depending on investment level.
