Binance Is Getting Dangerously Big

Thesis Summary

Binance Coin (BNB-USD) is the native coin of the Binance exchange. In a controversial move, Binance has now made a controversial move by converting numerous stablecoins on its platform to its own stablecoin BUSD (BUSD-USD).

Binance is much more than an exchange, and it is becoming a very dominant player in the crypto space while also being a very centralized entity, and this is something we can’t take lightly.

BNB: More Than a Cryptocurrency

Binance Coin powers one of the most popular cryptocurrency exchanges and its entire ecosystem. BNB was originally issued as an ERC20 token on the Ethereum blockchain when it was first launched in its 2017 ICO. Binance’s tech reaches among all strata of the cryptosphere, making Binance a household name.

But Binance is much more than an exchange, it is a flourishing ecosystem. There is a cryptocurrency exchange, both centralized and decentralized, an NFT platform (Binance NFT), a cryptocurrency wallet (Trust Wallet), a token launch platform, a blockchain/crypto education platform (Binance Academy), a charity (Binance Charity), and lots of blockchain projects that run on the Binance Smart Chain.

Binance introduced the BNB chain in 2019 as Binance moved from being a token on the Ethereum network to its mainnet. The BNB chain’s primary focus is facilitating fast, reliable, and decentralized trading.

To integrate smart contracts and make the Binance network scalable, Binance introduced a new blockchain network called the Binance Smart Chain (“BSC”). BSC runs parallel to the older BNB network, supports smart contracts, and is compatible with the Ethereum Virtual Machine. BSC is not a Layer-2 scalability solution that is built on top of the Binance Chain; it is an independent blockchain. The Binance Chain has been renamed the Binance Beacon Chain.

BSC has become one of the popular Layer-1 blockchains of choice for new blockchain projects; just like the Ethereum blockchain, BSC focuses on smart contract programmability. Some of the most popular dApps run on BSC.

A Bold Move

Binance recently announced it will remove the trading pairs for USCoin USD (USDC-USD), Pax Dollar (USDP-USD) and True USD (TUSD-USD) stablecoins from its exchange. Users’ holdings in these stablecoins will be auto-converted into BUSD at a 1:1 ratio; however, users will still be able to send and receive these stablecoins on Binance, but they will not be tradable assets on the exchange. With this move, the volume of the other stablecoins will most likely move into BUSD.

Stablecoins are some of the cryptocurrencies with the highest trading volumes and market caps. Binance introduced its stablecoin BUSD in September 2019. BUSD is pegged to a dollar at a one-to-one ratio – for every BUSD, one US Dollar or equivalent is held in reserve.

There have been incidents of stablecoins losing their USD peg value in the past months causing mass panic and loss of investors’ funds. The case of Terra Luna (LUNA-USD) and its stablecoin Tether USD (USDT-USD) is still fresh in the minds of the crypto community. Acala, a DeFi platform on Polkadot (DOT-USD), also had its stablecoin aUSD lose its peg after an exploit to one of its liquidity pools which caused 3 billion aUSD tokens to be erroneously minted.

On the one hand, fans of the exchange have praised this move as they have faith in the Binance ecosystem and its stablecoin; while critics, on the other hand, have expressed displeasure over the move by Binance, accusing the cryptocurrency giant of abusing its monopoly power.

Clearly, this move goes against many of the principles of crypto, but BNB is well within its rights, and so far it doesn’t seem to have affected its popularity.

Is Binance Too Big?

Binance is the largest crypto exchange in the world, has the 5th and 6th largest cryptocurrencies (BNB-USD and BUSD-USD) and has numerous other interests in the crypto space.

For example, Binance acquired Trust Wallet in 2018. Trust Wallet has grown to become one of the most used cryptocurrency mobile wallets today. Some of Binance’s top acquisitions over the years include CoinMarketCap, the most popular cryptocurrency price tracking website; Swipe, a cryptocurrency debit card provider, and WazirX, India’s leading cryptocurrency exchange.

The Binance Smart Chain remains one of the most active blockchains in the cryptocurrency industry. It is highly secure and scalable. BNB as the main coin of Binance and its ecosystem has lots of utility – payment of fees and participation in IEOs among others.

With that said, Binance is a centralized organization and so is its blockchain. Favouring its own stablecoin could be just the beginning of a very slippery slope, and investors should be aware of this.

Takeaway

In a short period, Binance has achieved a lot in terms of products, acquisitions, partnerships, and utility in the crypto space. Binance and BNB continue to grow, even as other exchanges and platforms fail. I am still bullish on BNB and Binance but am concerned about the implications of having a centralized entity have so much control over the crypto space.