Will the once-popular Binance Smart Chain decline in the future?

Binance Smart Chain (BSC), which was once very popular due to its low fees and support from the crypto exchange Binance, uses the BNB token as its native token. Now, although BNB is still a top five cryptocurrency by market cap, the sentiment around the token has changed dramatically. Let's take a look at the history of BSC and BNB, and how they may fare in the future.

Back in 2020, at the height of DeFi Summer, Ethereum faced its biggest scalability and congestion issues to date. Using simple dApps like Uniswap or Aave would cost upwards of $50 to $100, prohibiting many users of these markets from doing so. To solve this problem, Binance Smart Chain was created.

As the name suggests, Binance Smart Chain was created by Binance, the world's largest cryptocurrency exchange. BNB tokens are mainly used for discounts on Binance exchange fees and trade at around $10. In addition, Binance uses part of its profits every quarter to buy and destroy BNB tokens, which helps support prices.

Binance Smart Chain was launched on September 1, 2020, and it achieves low fees and fast transactions by using a different consensus mechanism than Ethereum. This sacrifices the security of the chain, making it more centralized than Ethereum, but users are attracted to its speed and low transaction costs. In addition, the chain uses the Ethereum Virtual Machine, which means that users and developers will have a very similar experience to using Ethereum, and any dApp or wallet can be easily ported.

In early 2021, it exploded in popularity, with the BNB token reaching a high of $650, a market cap of over $100 billion, and a total value locked of over $20 billion in May 2021. Because the development environment on BSC is the same as Ethereum, developers are able to easily copy popular projects and are incentivized through support from Binance and the potential for listing on its exchange. At its peak, one of the chain’s most popular dApps was PancakeSwap, a clone of Uniswap with highly inflationary token economics that promised users extremely high returns. Most other applications on BSC follow a similar path: copy a popular Ethereum application, create a new token with extremely high inflation, and promise users an annual interest rate of over 100% when they use the platform.

After other alternative first layers began to emerge, such as Avalanche and Fantom, interest in BSC began to wane. Today, few new and promising projects choose to build on BSC, instead opting for second layers like Arbitrum or Optimism, or first layers like Polygon or Avalanche. Since reaching a high of $20 billion in TVL, BSC has never come close to that number and is now around $5 billion.

Scammers use the chain to attack unsuspecting victims and copy other popular applications instead of making useful innovations and advancing the DeFi movement. Malicious actors know that the chain is popular with retail investors and use this to defraud unsuspecting victims with promises of getting rich. Although it remains a very popular blockchain, innovation has stagnated. In the future, perhaps Binance will come up with a compelling reason for users to continue building and using their chain, but for now, it seems to be languishing in obscurity like the so-called “Ethereum killers” that have failed before it.