Binance Coin (BNB) investors are mapping out why they believe crypto giant Binance, which runs one of the world’s leading crypto exchanges, is poised to become the first decentralized corporation, migrating its company’s value to its native cryptocurrency – perhaps within five years.
Binance Coin has had a meteoric rise in 2019, soaring from $6.02 to over $15, to become the world’s seventh largest cryptocurrency by market cap, surpassing Stellar, Tron, Cardano and Bitcoin SV. The cryptocurrency will be moved off of the Ethereum network to Binance’s native blockchain, Binance Chain, which had its testnet launch last month.
Binance Chain will power Binance DEX, a new decentralized exchange (DEX), that promises to deliver the best of Binance exchange in a decentralized setting. To fulfill the company’s goal of an open global financial system, Binance DEX will support high-throughput trading with fees going directly to validators of the blockchain.
Speaking with host Laura Shin on the podcast Unchained, Tushar Jain and Kyle Samani, managing partners of Austin-based crypto hedge fund Multicoin Capital, highlight the success of Binance and why they’re long on BNB.
“We’ve been watching Binance and their execution ever since they launched in 2017, and we’ve been incredibly impressed by how well they’ve executed, really dominating the crypto spot trading market.”
“What we see here is that Binance is the top-traded exchange for 82% of the top 50 tokens. And Binance is facilitating 36.6% of global crypto spot trading volumes.”
Jain says Binance trading volume exceeds the top three crypto exchanges combined, despite reported volumes on CoinMarketCap. He says his company’s research referenced findings from the Blockchain Transparency Institute which tried to determine the amount of real volume as opposed to reported volume. After adjusting for wash trading, the research shows that Binance dominates in both volume as well as number of token pairs.
Binance shot to the top of the industry by focusing on a vast number of crypto-to-crypto trading pairs without offering any on-ramps for fiat. The exchange quickly built a base of crypto enthusiasts who used Bitcoin and Ethereum as gateway coins that they could then trade for a long list of other cryptocurrencies that were often not listed on competing exchanges.
The timing of the offerings matched the sentiment of the crypto community at that time – months before the market crash and the “crypto winter” that began in January 2018 – marking a period that was exploratory and bullish.
By helping open up the blockchain conversation to more than just Bitcoin, Binance helped ignite the cryptosphere. It ushered in a brave new world of financial models and solutions offering blockchain-based products designed to eliminate intermediaries. Binance introduced swaths of crypto investors to blockchain alternatives aiming to remove centralized mechanisms, bureaucratic bloat, corporate malfeasance, hidden accounting and, in the case of banking, systemic abuses that allow traditional corporations to control the world of finance.
“The most remarkable thing about Binance is they’ve really executed this regulatory arbitrage strategy from inception. They moved headquarters about five times, if I’m not mistaken. They’re just structurally a very decentralized organization, and they have been since inception. Their 400 employees are spread across 40 countries or so. So, given that, Binance has been true to their mission of enabling people to exchange anything. ‘Exchange the world’ – that’s their tagline.”
Jain notes that Binance has launched several crypto-to-fiat exchanges, including in Jersey, Singapore and Uganda, and that it plans to launch several more as it builds out its crypto ecosystem. He calls Binance’s DEX the most important initiative from the company and notes that projects from Binance Launchpad, the company’s investing arm for initial exchange offerings, are a key component of the ecosystem.
“Things like Binance Chain, the decentralized exchange (the DEX), that has very large implications for the future of the Binance team and employees; [Binance] Launchpad as a capital formation and fundraising platform. Look at Binance Research, look at the fiat exchanges, and everything they’re doing is in support of that mission, but doing so in a compliant way and to do it in a way that bridges the old world to the new world.”
Binance is expected to offer lower fees on the DEX to incentivize people to leave its centralized exchange.
“Binance is very much trying to cannibalize their own business. That is the explicit goal here. And one of the ways they are encouraging people, both makers and takers, to move over to Binance Chain is by actually offering lower fees on the decentralized exchange than the centralized one. So there’s actually a fundamental economic motivation to move over.
Coupled with just general trade execution, it’s our expectation that Binance will solve the cold-start problem that has really plagued most decentralized exchanges historically.”
“In addition to that, they are also supporting hardware wallets from day one. So they’ve announced that Ledger will be supporting the Binance Chain and decentralized exchange from the day that Binance Chain is launched. They have also already seen implementations of Binance Chain through Trust Wallet, which is their Web 3 wallet that they acquired recently. And so I think that they will have much better tooling already available in order to attract volume to their decentralized exchange.”
One of the key features of Binance DEX is one-second block times with one-second finality, potentially eliminating the kind of angst crypto traders experience after executing a trade and then needing to wait for an unknown period of time before the blocks are confirmed and the transfer is settled.
The key to the exchange is BNB.
In addition to Binance Coin, the BNB community, acting as a decentralized autonomous organization, will determine which coins will be traded on Binance DEX.
“The Binance token is an interesting hybrid of many different use cases. The first use case is really that of a discount token in that if you pay your trading fees on Binance the centralized exchange, or the Binance Chain DEX, in BNB tokens, you get a discounted rate. And this incentivizes traders to hold BNB tokens in their accounts, and use them to pay for their trading fees in order to pay what is a substantially discounted rate.
In addition to being a discount token in that regard, it is also a staking token – and in multiple ways. First, users who hold a significant amount of BNB get discounted fees on the centralized exchange. So just by holding some BNB, you also get an additional fee discount. Also, if you hold a significant amount of BNB – I believe it’s 500 BNB at the moment – your referral fees from actually sending out your referral code to invite new users to the Binance exchange are doubled, and so that provides an additional incentive.
And last, but certainly not least, one of the most important pure utility aspects of the BNB token is staking BNB tokens as a validator on Binance Chain, in being able to earn a percentage of all fees that are paid on the Binance Chain. And I think that’s extraordinarily valuable.”
Jain also explains the buy-and-burn model of Binance Coin.
“At the end of the day, the number of BNB outstanding is decreasing, and this means that each and every BNB that you do hold has greater utility in all of the aspects that I mentioned earlier.”
Shin suggests BNB may meet the definition of the Howey Test, which would classify BNB as a security under US securities laws.
“While there is some risk there, it’s just something we as investors are willing to take on. We are compensated for taking risk, and if we didn’t want to take any risk, we would just be investing in US Treasuries.”
You can listen to the full podcast here.