Binance Coin (BNB)
BINANCE SUMMARY REPORT
Binance launched its exchange on July 14th, 2017, and by the time of this post, Binance deals more cryptocurrency trading daily volume than any other exchange that does not offer futures contracts nor margin trading. Binance is a model company for other exchanges to look up to and they have their own cryptocurrency token, Binance Coin (BNB). This summary will review the Binance exchange and its Binance Coin and will explain whether the Binance Coin is worth investing in. We will review the Binance exchange and then the Binance Coin.
Binance’s white paper claims there are two different types of exchanges: ones that deal with fiat currency; and ones that deal with only cryptocurrencies. Binance categorizes itself as a pure cryptocurrency exchange. When compared to other pure cryptocurrency exchanges, Binance is either the best or very competitive in terms of its technical architecture, security, liquidity, customer service, language support, and fee structure. Binance’s user interface experience is hard to compare objectively with other exchanges, but Binance also excels in that category. Although there are two different types of cryptocurrency exchanges, they still compete and must be compared when conducting market analysis. Here are some objective measures:
Additionally, Binance has handled security issues well in the past, and typically communicates suspicious activity within 24 hours. Examples of their communication can be seen on Twitter and on their site’s Blog.
The Binance exchange has a lot of competition. The most threatening competitors are ones that could support fiat pairs with several cryptocurrencies or decentralized exchanges that offer a trustless exchange solution. Under the status quo there are no exchanges that offer extensive fiat pairs for global users or decentralized exchanges that are easy to use and have high liquidity. Binance aims to improve their exchange by adding spot trading, margin trading, futures, anonymous instant exchange, decentralized exchange, and more. There are other exchanges that promise to tackle some of those issues and offer those features, but none have an existing platform that can compete with Binance.
How does this relate to Binance’s Coin (BNB)?
The Binance Coin is used as an option to pay reduced fees on the Binance Exchange. Binance fees are normally .1% but are reduced to .05% if they are paid in BNB. The discount for fees in future years are:
This means that every user on the Binance exchange should buy BNB and use it to pay their trading fees. This creates demand for BNB but not intrinsic value because the fees are paid in terms of the present value of BNB instead of a set quantity of BNB. For example, if one made a $1,000 trade, they would need to pay $1 in fees (.1%) or $.5 worth of BNB (.05%). That $.5 worth of BNB could mean .05 BNB coins (if 1 BNB was worth $10) or it could mean 1 BNB coin (if BNB was worth $.5). The idea here is that the price of BNB does not have to do with how much money users are saving because they pay their fees in converted quantities of Bitcoin or other currency values and not quantities of BNB. However, because there is incentive to use BNB for paying fees, the demand for BNB should increase as more trading takes place on the Binance.
As Binance expands its platform and offers spot trading, margin trading, futures, anonymous instant exchange, decentralized exchange, and more, we expect more demand for BNB, causing its price to increase.
Binance recently announced that it will move BNB from the Ethereum blockchain to its own blockchain, suggesting that the BNB coin will be used as fuel to execute transactions on a decentralized exchange, as well as a token needed to launch potential ICOs. Some decentralized exchanges already exist (IDEX) but liquidity and volume are too low to be a viable solution. Additionally, there are projects trying to create a decentralized exchange (Kyber Network, Ethos) but neither have a viable product. People can speculate that those new exchanges will eventually have a viable product, but it seems safer to speculate that Binance will beat them to the chase, especially because Binance already has a working product with a supporting team that has proven itself as industry leaders.
Exchanges have always been centers of attention in the cryptocurrency industry because many people use them for storage, which has historically led to hacks and misused funds. There is constant demand for better exchanges, and Binance has taken advantage of that demand, as can be seen with its meteoric rise in volume since its inception from July 2017. We have seen new exchanges try to emerge (KuCoin for example) but struggle with security, user interface, liquidity, communication, and scalability. Although Binance temporarily disabled registration in early 2018, it has successfully addressed all those issues. There are competitors that could create a better product than Binance (Robinhood, GDAX, Gemini, Ethos, Kyber Network, etc) but our research suggests that Binance is a safer bet for the future because of its proven 9 month track record. Binance’s growing exchange will mean more demand for the BNB coin.
An additional external risk that should be noted is the potential for total cryptocurrency trading volume for all platforms to go up or down. If global demand and volume for cryptocurrencies increases, Binance Coin will appreciate. Likewise, if global demand for cryptocurrencies decreases, Binance Coin will depreciate. This is indirectly true for all cryptocurrencies (a high tide will affect all boats) but is directly true for exchange related cryptocurrencies because their exchanges are directly tied to trading volume numbers. For that reason, the state of the entire cryptocurrency industry will cause Binance Coin’s price to fluctuate, whereas other coins will have a correlative price fluctuation.