OKX makes a play in $3.7bn sports coin market with Chiliz Chain deal

Deepening its bet on sports crypto plays, OKX, the fourth biggest crypto exchange, plans to become a validator on the Chiliz blockchain, the companies said Thursday.

Chiliz Chain, a self-styled sports blockchain that went live last May, specialises in launching fan tokens.

These cryptocurrencies give their holders the ability to vote on things like which music should play when a team scores a goal or which jerseys they should wear for specific matches.

And they’ve gained a lot of popularity so far — the crypto sports coin market is worth $3.7 billion, according to data from CoinGecko.

The fan token for Paris Saint-Germain FC, the Paris based soccer team, sports a market value of $32 million. The club, which features superstar striker Kylian Mbappé, is also a validator on Chiliz.

The coin issued by Manchester City, the English club that has won three consecutive Premier League championships, is worth $28 million.

Validators rewarded

OKX has long listed and promoted these tokens. The crypto exchange is a major sponsor of Manchester City.

As a validator, OKX will join others in preventing malicious users from sending fraudulent transactions across the Chiliz Chain, a layer 1 network.

To become a validator, users need to stake a certain number of a network’s tokens to join.

“PSG owns the Chiliz token to stake the node,” Alexander Dreyfus, Chiliz’ CEO, told DL News on the sidelines of Paris Blockchain Week. It has a third-party provider that maintains that node.

These are important roles in a blockchain network.

Validators are computers that run continuously to monitor a network. They are rewarded for doing this in the network’s native token. Chiliz gives its validators CHZ tokens, whereas Ethereum gives its validators ETH.

Dreyfus says validators on Chiliz today earn 2% in annual yield in CHZ. One token is worth 14 cents today, and the total market value of the token is $1.3 billion, according to CoinGecko data.

‘Technically, it’s 11 validators because it’s like the starting 11 of a football team.’

—  Alexander Dreyfus, Chiliz CEO

Without validators, a network wouldn’t be able to operate and may be vulnerable to a 51% attack. This is when bad validators outnumber good ones to pass fraudulent transactions on a network, which would be catastrophic.

Though Chiliz’s validator count is low — Ethereum has nearly 1 million — not anyone can launch a validator. Instead, said Dreyfus, they only onboard strategic partners that undergo a thorough vetting process.

“Technically, it’s 11 validators because it’s like the starting 11 of a football team,” Dreyfus said. “But now it’s moving. It’s going to be 20 or so in the next few weeks.”

Not a memecoin

Holders of the fan tokens can, of course, speculate on the price of those tokens like any other.

After losing to Barcelona last night in the Champions League, for instance, the PSG token is down some 6% today.

But Dreyfus said that’s not the point and called the comparison to memecoins “deeply insulting.”

He said there is a big difference between a company like Paris Saint-Germain, which has more than 60 years of intellectual property, and a memecoin launched in a day.

“I hated memecoins,” Dreyfus said. “I do believe they’re relevant to the blockchain ecosystem, but for the utility narrative, they don’t fit.”

That utility behind fan tokens, he argues, is the unique voting capabilities that come with them.

Holders can use the tokens to vote on the type of music that plays when their team scores, for instance, or what jerseys they should wear for a match.

“In January 2020, Juventus was the first team to launch a poll for its fan token holders,” said Dreyfus. “They asked fans, ‘Which music do you want to have in the stadium when we score?’”

The clubs also conduct these votes, and they’re contractually obliged to obey the results.

If not, they’d face financial penalties, said Dreyfus.

Liam Kelly is DL News’ Berlin correspondent. Contact him at liam@dlnews.com.