Binance Is Getting Dangerously Big

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Summary of the thesis

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 many stablecoins on its platform into its own stablecoin BUSD (BUSD-USD).

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Binance is so much more than an exchange, and it’s becoming a very dominant player in the crypto space while being a very centralized entity, and that’s 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 initially issued as an ERC20 token on the Ethereum blockchain when it first launched in its 2017 ICO. Binance’s technology reaches into all strata of the cryptosphere, making Binance a household name.

But Binance is much more than an exchange, it’s a thriving 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 many blockchain projects that run on the Binance Smart Chain.

Binance introduced the BNB chain in 2019 as Binance transitioned from being a token on the Ethereum network to its mainnet. The main objective of the BNB chain is to facilitate fast, reliable and decentralized trading.

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

BSC has become one of the most popular layer-1 blockchains for new blockchain projects; much like the Ethereum blockchain, BSC focuses on the programmability of smart contracts. Some of the most popular dApps run on BSC.

A bold move

Binance recently announced that it will remove trading pairs for the stablecoins USCoin USD (USDC-USD), Pax Dollar (USDP-USD), and True USD (TUSD-USD) from its exchange. User holdings in these stablecoins will automatically convert to 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 other stablecoins will most likely shift to BUSD.

Stablecoins are among the cryptocurrencies with the highest trading volumes and market capitalizations. Binance launched its BUSD stablecoin in September 2019. BUSD is pegged to one 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 over the past few months, causing mass panic and loss of investor 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 saw its aUSD stablecoin lose its peg after an exploit on one of its liquidity pools caused 3 billion aUSD tokens to be misminted.

On the one hand, the fans of the exchange welcomed this decision because they have confidence in the Binance ecosystem and its stablecoin; while critics, on the other hand, expressed their displeasure with Binance’s decision, accusing the cryptocurrency giant of abusing its monopoly power.

Obviously, this move goes against many 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, owns the 5th and 6th largest cryptocurrencies (BNB-USD and BUSD-USD), and has many other interests in the crypto space.

For example, Binance acquired Trust Wallet in 2018. Trust Wallet has become one of the most widely used mobile cryptocurrency 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.

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 a lot of uses – paying fees and participating in IEOs among others.

That said, Binance is a centralized organization, just like its blockchain. Favoring your own stablecoin could be just the start of a very slippery slope, and investors should be aware of this.

Carry

In a short time, Binance has accomplished 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’m still bullish on BNB and Binance, but I’m concerned about the implications of having a centralized entity with so much control over the crypto space.

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Binance Is Getting Dangerously Big


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