BNB Chain (BNB): A token still heavily dependent on Binance

What you need to know 🐳

The BNB is at the heart of Binance's strategy. It benefits from numerous advantages within the platform, coupled with a "buy back & burn" programme. This programme consists of destroying the outstanding supply of tokens, thanks to part of the profits made by the exchange platform.

This is one of the main reasons why its share price has risen (171% over one year).

The BNB Chain is a historic blockchain that had its moment of glory when Ethereum's layer 2 solutions did not yet exist.

However, it has been experiencing a certain decline for several months and is struggling to attract unique projects that would differentiate it.

Overview 🧬

The Binance platform and the BNB token were launched simultaneously in July 2017. Originally, the sole purpose of the BNB was to offer a 50% discount on trading fees (since reduced to 25%).

Binance has also committed to using 20% of its quarterly profits to buy back and destroy BNB tokens ("buy back and burn"), until their total number is halved. Of the 200 million BNB initially created, only 146 million remain.

The BNB has gained new uses in 2019 and 2020 with the introduction of launchpads, where users block BNB to receive free tokens from emerging projects selected by Binance.

To date, 97 projects listed on Binance have distributed some of their tokens via launchpads, benefiting BNB holders.

The Binance payment card, launched in 2020 (but banned in Europe since 2023), offered cashback proportional to the number of BNBs held by the user.

In 2024, Binance introduced "megadrops", allowing users to block BNBs to complete various quests and receive airdrop from a new partner project.

Thus, Binance is constantly innovating with new features that directly benefit BNB holders. Demand for the token is therefore closely linked to the platform's activity.

The usefulness of the BNB has extended beyond Binance with the launch of the Binance Smart Chain (BSC) in September 2020. On this blockchain (now renamed BNB Chain), the BNB serves as a native token and can be staked to secure the network.

The BNB Chain is designed with Ethereum's programming language, giving it great compatibility with this protocol.

Financing 💰

Binance's Initial Coin Offering (ICO) took place in July 2017, raising $15 million.

The identity of the initial investors remains unknown, as this transaction took place during a period when ICOs lacked transparency. However, the white paper presented the following breakdown:

- 50% for ICO participants
- 40% for the team
- 10% for angel investors

This distribution was relatively fair to the community, unlike many current projects which reserve a smaller share for it.

The funds allocated to the team were subject to progressive release until 2021.

As for the community, it benefited from immediate liquidity from launch.

Team and community 👾

Richard Teng is the current CEO of Binance, having previously served as CEO of Binance Singapore and Head of Regional Markets. Prior to joining Binance in 2021, he was a regulator, holding senior positions at the Abu Dhabi Global Market Financial Services Authority, the Singapore Exchange and the Monetary Authority of Singapore.

Changpeng Zhao, nicknamed CZ, is the co-founder and former CEO of Binance. His background includes a stint at Bloomberg and the founding of Fusion Systems, a company specialising in high-frequency trading solutions. Before founding Binance, he was CTO at Blockchaincom. In November 2023, CZ stepped down from his position at Binance following a lawsuit brought by the US regulator.

Officially, he no longer holds an operational position.

Yi He, co-founder of Binance, managed to retain her position at the company despite the US Department of Justice's (DOJ) desire to see her leave at the same time as CZ. She reportedly owns around 10% of the company.

Binance's community is large, with 13 million followers on X.

Functioning ⛓️

The BNB Chain is based on the Ethereum Virtual Machine (EVM), making it easy to deploy applications present on other EVM blockchains, including Ethereum.

The BNB Chain can process a large number of transactions at low cost, which made it particularly attractive when it was launched, at a time when Ethereum was congested and layer 2 solutions did not yet exist.

Currently, a token swap on the BNB Chain costs around one dollar.

The downside of this high performance is that the BNB Chain is only secured by 45 validators. However, these validators benefit from EVM innovations and rely on three different clients (Geth, Erigon and Reth) to operate the chain. This means that the chain should remain operational even if one of the clients fails.

In August 2023, layer 2 opBNB was launched on the BNB Chain. This chain is based on the OP Stack developed by Optimism. This initiative can be seen as a response to Ethereum's layer 2s, which offer lower fees than the BNB Chain.

System 🤝

The BNB Chain is the 4th largest blockchain in terms of total value locked (TVL) on its protocols, with around $4.6 billion. However, the BNB Chain does not stand out for particularly innovative applications, most of which are forks of popular Ethereum applications.

Venus, the BNB Chain's flagship lending protocol, works in a similar way to Compound. Here, liquidity is aggregated into a single pool, with improved returns thanks to the distribution of XVS, the protocol's token. Separate pools also exist for tokens with different risk profiles.

PancakeSwap is the main decentralised exchange (DEX) in the BNB Chain. It offers various types of pools inspired by UniswapV2, UniswapV3 and Curve's stable pools. In addition, CAKE holders can vote for pools to receive additional CAKE rewards.

ListaDAO issues its stablecoin, liUSD, under the collateralised debt position (CDP) model, similar to MakerDAO and its DAI.

While Uniswap and Aave are also present on the BNB Chain, they have less traction there than their respective forks, probably due to their later deployment.

opBNB, layer 2 of the BNB Chain, only has a TVL of $25m. Most of the protocols found there are also present on the main BNB Chain.

The BNB token 🌕

The BNB token offers several advantages on the Binance platform. It provides access to launchpads and megadrops, allowing users to participate in distributions of new tokens.

In addition, the BNB provides access to various VIP levels that offer benefits, including discounts on trading fees.

Holders can also stage their BNB to earn an annual return of around 2%.

Binance uses 20% of its quarterly profits to carry out "buy back and burn" operations on the BNB. For example, $925 million will be burned in the third quarter of 2024 as part of this operation.

This mechanism results in a scarcity of BNB supply.

In addition, some of the transaction fees paid in BNB on the BNB Chain are also destroyed, further contributing to the reduction in the quantity of BNB in circulation.

Competitors ⚔️

The BNB Chain originally competed with other EVM-based layer 1 blockchains, including Polygon, Avalanche, Fantom and Celo.

However, the emergence of layer 2s on Ethereum turned the landscape on its head. These layers 2 have rapidly gained popularity, and their adoption is accelerating. They benefit from many of the security features of the Ethereum network and can exploit its immense liquidity. This new paradigm has prompted several former L1s, such as Polygon and Celo, to transform into Ethereum layers 2.

The BNB Chain retains its position as the 4th largest blockchain in terms of TVL, thanks to its historical presence and the support of giant Binance. Nevertheless, its TVL has been declining since 2021, and few innovative applications have been specifically launched on it. By contrast, Base, Coinbase's layer 2, has been growing steadily and attracting new apps since its launch in July 2023.

Regulation ⚖️

This is probably the Achilles heel of this project.

Although Binance has agreed to pay $4.3 billion to the US to end money laundering charges against the exchange platform, the fate of BNB is still not sealed.

In fact, the token is still the subject of accusations from the US regulator, which considers that the BNB is in fact an illegal financial security.

In contrast to many projects that agree to forgo the US market, Binance has been under increased scrutiny in the US since 2024. There is therefore considerable uncertainty about BNB's legal future.

Risks and limitations 😨

The BNB Chain remains a relatively centralised blockchain, mainly due to its limit of 45 validators. The focus on performance means that expensive hardware is required to run a validator on the NBB Chain, which is another barrier to decentralisation.

In October 2022, when the NBB Chain bridge was hacked, the blockchain was quickly paused to limit the damage. While understandable, this type of intervention prevents the BNB Chain from being considered a truly neutral and stable blockchain.

Much of the BNB's strength is directly linked to the business of Binance, a centralised company that could decide to reduce the benefits offered to BNB holders as part of a change in strategy.

As this mechanism depends on the financial results of Binance - an unlisted company that can choose the figures it communicates - there is no total transparency.

Binance plans to stop the "burn" mechanism when the number of BNBs in circulation reaches 200 million units. At that point, there will be no more mechanical creation of scarcity.

Roadmap 📝

The BNB Chain aims to improve its performance by introducing a parallelized EVM based on the Block STM model, developed by Aptos and adopted by other blockchains such as Starknet and Polygon. Block STM enables transactions to be executed optimistically in parallel: all transactions are processed simultaneously by default, and those that conflict are reexecuted and reordered.

The team is also working on developing "gasless" payments, offering the possibility of paying transaction fees in stablecoins rather than BNB, with the aim of improving the user experience.

Where can you buy the BNB token? 🛒

BNB can be purchased on regulated exchange platforms in Europe such as Binance or OKX, but also directly on the BNB Chain.

The Big Whale's opinion 🐳

BNB benefits from a number of advantages offered by Binance. Launchpads offer attractive returns to BNB holders, while the "buy back & burn" programme generates buying pressure on the token, directly linked to the exchange's performance.

Binance's dominant position in the centralised exchange market thus supports the value of the BNB.

Beyond the advantages offered by Binance, the BNB also relies on the BNB Chain. Although it is one of the most active blockchains with a significant TVL, it seems to be losing ground to the rise of Ethereum's layers 2.

The strength of BNB therefore stems mainly from Binance's support rather than its use in DeFi. As a result, BNB's future is closely linked to Binance's and its strategic decisions.

If the platform were to lose market share - which is conceivable given the increased scrutiny from the US authorities - BNB could suffer the consequences.

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