(In paragraph 20, corrects to "four new fan tokens" after

company clarification)

By Lisa Pauline Mattackal

June 11 (Reuters) - As football fever builds for major

tournaments in Europe and the Americas, a small yet buzzy part

of the cryptoverse is stealing centre stage: fan tokens.

These are not your average digital assets, they're tokens

issued by national sides or individual clubs that promise

supporters a tradeable way to engage with their teams.

Activity in tokens linked to participating national teams

has increased ahead of the Euro 2024 European soccer

championship, which kicks off on Friday, and the Copa América in

North and South America that starts a week later.

The market value of the Chiliz cryptocurrency - the native

coin of the Socios blockchain which hosts most major fan tokens,

and thus a broad proxy for the niche sector - has climbed to

more than $1.07 billion from about $687 million at the start of

the year and is nearing levels last seen around the 2022 World

Cup, according to data from CoinGecko.

Trading volumes of fan tokens have also picked up in recent

months, registering more than $170 million on May 24, versus

between $25 million and $57 million for most of January,

according to data from Kaiko. The total market value of listed

fan tokens stands 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

like raffle entries, early ticket access, merchandise discounts,

or chances to vote on minor decisions such as match songs

Backers laud the tokens as a rare example of real-world

crypto utility, while critics highlight the tensions between the

stated purpose of team engagement and the speculative - and

risky - nature of tradeable assets.

A spokesperson for Chiliz 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 edged up about 2% in

the past 30 days to $2.94, while Argentina's token briefly

touched its highest level since 2022 at $2.46 - though both are

still trading below their peaks hit around the 2022 World Cup.

"There has been a major uptick in trading volumes but we

expect it to be short-lived," said Jag Kooner, head of

derivatives at Bitfinex, pointing to a drop-off 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

supporters during a previous crypto boom in 2021, drawing the

ire of critics who warned they might encourage financial

speculation.

British lawmakers warned last year that the rise of NFTs in

sport was putting supporters at risk of financial harm and

potentially damaging the reputations of clubs. Meanwhile, the

football supporters' association of England and Wales has

dismissed fan token partnerships as "trying to monetize trivial

matters" or "inserting financial barriers into genuine supporter

engagement".

ENGAGEMENT VS SPECULATION

Changes in token volume and price don't always correspond

with team performance, noted Adam McCarthy, research analyst at

Kaiko.

"I don't see evidence that holders benefit from holding

these tokens as a sort of bet on the respective teams success,"

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 that is found in traditional finance. Volumes

and returns typically increase ahead of major tournaments, then

fall at the onset of important matches.

On the other hand, another study found fans who buy tokens

typically take advantage of the benefits offered via voting on

club-related decisions.

"When fans are given a chance to influence club decisions,

they engage substantively," said Lennart Ante, who worked on

both studies and is CEO of the Blockchain Research Lab.

"The dual nature of fan tokens as both engagement tools

and speculative assets creates a dichotomy," Ante added. "The

future of fan tokens could hinge on how this distribution

between engagement-focused users and speculators evolves."

SLOW GROWTH EVEN AS TOKENS POP UP

The growth of tokens linked to club sides, 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

like Solana, Bitfinex's Kooner said. Chiliz said they had

launched four new fan tokens in the past 12 months for clubs

including Tottenham Hotspur and and Benfica.

French football giant Paris Saint-Germain, which has a fan

token, announced earlier this year 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 via digital equity tokens. Beyond the

equity stake, other perks include dinners with team members and

private training ground tours, depending on the level of

investment.