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By Lisa Pauline Mattackal

(Reuters) – As soccer fever rises ahead of major tournaments in Europe and America, a small but controversial part of the crypto world is taking center stage: fan tokens.

These are not normal digital assets, but tokens issued by national teams or individual clubs that promise fans a tradable way to interact with their teams.

Ahead of the 2024 European Football Championship, which begins on Friday, and the Copa América in North and South America, which begins a week later, activity has increased in tokens linked to the participating national teams.

The market value of the cryptocurrency Chiliz – the native coin of the Socios blockchain that hosts most of the major fan tokens and is thus a broad indicator of the niche sector – has risen from around $687 million at the start of the year to over $1.07 billion, approaching levels last seen around the 2022 World Cup, according to data from CoinGecko.

Fan token trading volumes have also been increasing in recent months, reaching more than $170 million on May 24, while most of January was between $25 million and $57 million, according to data from Kaiko. The total market value of listed fan tokens is around $413 million, according to data from CoinGecko.

This summer of sport could be a crucial test for the fledgling fan token sector, which typically offers perks such as prize draw entries, early ticket access, merchandise discounts or the ability to vote on smaller decisions such as game songs.

Supporters praise the tokens as a rare example of real-world cryptocurrency utility, while critics highlight tensions between the stated purpose of team engagement and the speculative – and risky – nature of the tradable assets.

A Chiliz spokesperson said the company’s marketing strategy makes it clear that “fan tokens are fan engagement tools and should be used as such.”

The price of the Portuguese fan token has risen by about 2% to $2.94 over the past 30 days, while the Argentine token briefly hit its highest level since 2022 at $2.46 – however, both are still trading below their highs reached around the 2022 World Cup.

“There has been a significant increase in trading volume, but we expect this to be short-lived,” said Jag Kooner, head of derivatives at Bitfinex, citing a decline in trading following the World Cup.

Many top soccer teams and sports stars promoted crypto assets – such as non-fungible tokens (NFTs) or fan tokens – to their fans during an earlier crypto boom in 2021, drawing the ire of critics who warned that they could encourage financial speculation.

British politicians warned last year that the rise of NFTs in sport was putting fans at financial risk and potentially damaging clubs’ reputations. Meanwhile, the Football Supporters Association of England and Wales has dismissed fan token partnerships as “attempts to monetize trivial matters” or “financial barriers to genuine fan engagement.”

ENGAGEMENT VS. SPECULATION

Changes in token volume and price do not always correspond with team performance, noted Adam McCarthy, research analyst at Kaiko.

“I see no evidence that it is beneficial for holders to hold these tokens as some kind of bet on the success of the respective team,” he added.

A study analyzing fan token trading around major sporting events found that it often follows the “buy the rumor, sell the news” pattern found in traditional finance. Volume and returns typically increase before major tournaments, but then fall as important matches begin.

On the other hand, another study found that fans who buy tokens tend to take advantage of the benefits offered by voting on club-related decisions.

“When fans are given the opportunity to influence club decisions, they become substantially involved,” says Lennart Ante, who worked on both studies and is CEO of the Blockchain Research Lab.

“The dual nature of fan tokens as engagement tools and objects of speculation creates a dichotomy,” Ante added. “The future of fan tokens could depend on how this distribution between engagement-oriented users and speculators evolves.”

SLOW GROWTH EVEN AS TOKENS EMERGE

The growth of tokens tied to club teams rather than national teams remains slow.

At the same time, the number of fan tokens has increased in recent years as it is easier to launch tokens on blockchains like Solana, said Bitfinex’s Kooner. Chiliz said they 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 club Watford FC recently offered investors and fans a 10 percent stake in the club via digital share tokens. In addition to the share, there are other perks including dinners with team members and private training ground tours, depending on the size of the investment.

(Reporting by Lisa Mattackal in Bengaluru; Editing by Tommy Reggiori Wilkes and Pravin Char)

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