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Binance Coin’s soaring value is perhaps the best Chinese New Year’s gift its employees (who are paid in BNB) and bag holders could ever receive. As the native token of Binance Exchange and Binance Smart Chain (BSC), BNB has surprised the entire crypto market by skyrocketing from $40 to over $300 in a matter of 20 days, surpassing Tether’s USDT stablecoin and Polkadot’s DOT to become the third-largest crypto by market capitalization.
It’s well-known that BSC is not decentralized. It relies on a network of 21 validators using Proof of Staked Authority (PoSa) consensus. But the recent surge of BNB sparked some controversy—not just around the centralized nature of the chain, but also other tactics that are being used to promote the chain.
Some have pointed out that BSC’s smart contract transactions are rife with failed attempts. These failed transactions would appear to belie CEO Changpeng Zhao’s claim that there are more than three times as many daily transactions on BSC as Ethereum. Since Binance has also quietly switched customers’ withdrawal chain to BSC, some users have complained that the experience is confusing, leading to lost funds. And exchanges such as FTX have piled on, complaining about having to charge users additional costs to recover customers’ funds.
Obligatory disclosure here: My day job these days is doing corp dev at ConsenSys, an Ethereum incubator. Still, though some of the Binance criticisms are plausible, the evidence is indirect at best. More importantly, dismissing the rise of BSC as a pure volume play by the exchange is another form of intellectual laziness, because real money is flowing into the BSC ecosystem and that fact cannot be ignored.
This week’s da bing digs into the surge of BSC and why it may appear surprising but is actually inevitable.
A cheaper, mirrored world
Why did Binance roll out its own “smart chain?” Binance is supposedly the single biggest user of Ethereum, according to this thread retweeted by CZ, which asserts that the reason it pivoted its own, more centralized chain is to help its users save gas fees.
Beyond that, most of the biggest-volume projects being built on BSC proudly resemble Ethereum-based DeFi projects, with a bit of Chinese characteristics.
- PancakeSwap, a copycat of Uniswap, that allows users to provide liquidity and earn governance token, is the most used contract in the BSC ecosystem. Its trading volume reportedly flipped that of the Uniswap’s. Pancakeswap also started a gamified token launch mechanism called Initial Farm Offering, which allows anyone to earn new tokens by staking $CAKE and $BNB in an hour-long token sale.
- Venus is BSC’s version of a lending and borrowing protocol. The protocol’s White Paper claimed that it had forked and combined the best of Compound and MakerDAO. The protocol mints a stablecoin called VAI, backed by a basket of various BEP-20 tokens.
- Autofarm is a copycat of Yearn and even better than the OG; it lives on both BSC and Huobi’s ECO chain (HECO). Interestingly enough, just like how Yearn had a capped supply, Autofarm also committed to a fixed token supply and boasted about its no pre-farm, no pre-sales “fair launch.”
Binance didn’t simply copy the code, it also built a Binance Bridge, which allows users to wrap assets from other blockchains and bring them to BSC. But despite Binance’s best efforts to integrate with the rest of the ecosystem, the majority of trading pairs on PancakeSwap are still Binance-denominated assets.
What’s the home run for these projects? The real rewards occur when these DeFi projects and their supposedly no-value governance tokens get listed on Binance’s main exchange where millions of retail buyers ape in.
BSC is an irresistible, end-to-end, token-production assembly line.
This dodo is flying high
Prominent Ethereum-based DeFi projects are also replicating themselves on BSC, aiming to get easy access to Binance’s impressive customer base. One such team is DODO. Known for its pioneering market-making algorithm called “Proactive Market Making,” DODO launched its BSC deployment yesterday.
According to Mingda Lei, co-founder of DODO, the team has deployed the same protocol on BSC with a focus on Binance’s affiliated assets. In addition, the new version will also provide liquidity source aggregation by integrating with PancakeSwap. Pools targeting professional market makers will also be launched.
Perhaps the most important aspect of DODO launching on BSC is the transfer of $DODO from Ethereum to BSC. In order to incentivize BSC users, DODO will migrate 4% of its entire token supply to BSC in the coming days.
DODO’s token price tripled when the news hit.
But there’s an elephant in the room with the dodos. How will Ethereum-DODO co-evolve with BSC-DODO? For now, the two seem to serve two different markets with the overlap of sharing the same governance token. But will the two DODOs head in the same direction because the code comes from the same team? Or different directions because they are serving different customers?
Fake it ‘til you make it
As Mable Jiang pointed out, BSC provides an alternative in the DeFi ecosystem. Ethereum’s fees are once again, too expensive for the average Joe to use. And for now at least, L2 projects are still nascent with many still in their R&D phase. More importantly, these new waves of BSC tokens gave China’s crypto community a taste of DeFi Summer 2.0.
BSC spoon fed thousands of Chinese retail investors the sweetness of yield farming, at minimal cost. It was an overnight product-market fit—and suddenly everyone understood why DeFi is here to stay.
BSC’s success gave new meaning to what an exchange token could do. As Coinbase’s valuation continues to grow ahead of its IPO, why can’t Binance, a close relative of Coinbase, enjoy its own ride? If Coinbase legitimizes the crypto industry, Binance showcases that there’s no limit in an unregulated crypto world.
Questions do remain for BSC, of course.
First, BSC seems to be appealing only to the China market. “The China crypto ecosystem in some ways is distinct from international crypto. It’s probably fair to say that BSC is viewed as more credible within China versus internationally. In the short term BSC’s speculation opportunities are proving quite attractive to Chinese retail punters and even institutional investors.” Matthew Graham, CEO of Beijing-based Sino Global Capital, told me.
Second, it’s not clear how Binance would compete with other centralized exchanges’ DeFi chains. For example, both Huobi and OKex launched their own blockchains in 2020, and Huobi has also doubled down on its HECO chain. Since the exchanges target the same cohort of Chinese customers and liquidity has no loyalty, will BSC maintain its leading position?
At the 30,000-foot level, I do wonder how BSC fits into the whole Layer 1/Layer 2 narrative. Is BSC a strong enough force to compete with Ethereum, despite CZ’s repeating statement that BSC is not a Eth-killer? Or will BSC function more like Ethereum’s intranet and serve a subset of the decentralized world, given that so much of BSC’s volume comes from Metamask, an essential component of Ethereum’s infrastructure?
Finally, let’s keep in mind that BSC is Binance’s second attempt at launching its own blockchain. Its first chain was Binance Chain, a fork of Tendermint and Cosmos SDK. That chain attracted little volume. Then Binance forked Ethereum, riding high on being EVM compatible, and that's where we are now.
Perhaps BinanceSmartChain will work in the long haul. And if it doesn’t?
Blockchains are not a religion to CZ or Binance. The company is pragmatic and will go after anything that works and attracts a community. It won’t surprise me at all if Binance forks yet another chain as we enter into the multi-chain universe.
Did you know?
渣男, pronounced zhā nán, means jerk/douche/trashy man. But it’s often used to describe tokens that never get pumped, or tokens that get dumped when you start buying in. In crypto, a token is referred as 渣男 when it gives you a hint of going up, but actually goes down. What’s your 渣男 token?