The ambition and embarrassment of Binance Smart Chain (BSC): Surpassing Ethereum or becoming Justin Sun?

  1      Public chains are eating into centralized exchanges

Although Binance announced in May 2019 that it would destroy all BNB based on the ERC-20 protocol in its hot and cold wallets and convert them in equal proportion into tokens based on the BEP2 protocol of the Binance Chain, as of now, BNB is still the most successful ERC-20 project in the history of Ethereum, and its market value and number of coin holding addresses are second only to USDT (ERC-20).

At this time, Binance is ambitious and aims to target Ethereum's two major areas: decentralized exchanges (DEX) and smart contracts.

As a centralized exchange, all of Binance's financial businesses are centered around transactions. Whether it is listing coins, mining, or the development of financial derivatives, any subsequent work is meaningless without the support of token trading volume. However, the major public chains represented by "Ethereum" that support the trading volume of centralized exchanges will be the biggest enemies of centralized exchanges in the future.

Now, Ethereum miners and liquidity providers on decentralized exchanges are eroding the livelihoods of centralized exchanges like Binance.

According to data from ETH GAS Station, in the past 30 days, the top 10 projects/addresses in terms of gas fees on Ethereum were almost all DEXs or oracles that provided data services to DEXs. The total gas fees on the 30th exceeded 87,580 ETH, equivalent to 35.07 million US dollars.

The latest BNB destruction announcement showed that $60.5 million worth of BNB was destroyed. According to the data before the white paper was modified, the destruction value accounted for 20% of the quarterly profit. It can be inferred that Binance's profit in the second quarter of this year was $303 million, equivalent to an average monthly profit of about $100 million.

Compared with the accumulated gas fees on Ethereum in the past 30 days, the gap between this amount and the total is not huge. In the process of Ethereum DApp providing services, miners act as the underlying exchange and take away most of the "transaction fees"; at the application level, traders who provide liquidity to decentralized exchanges such as Uniswap can also extract a certain percentage of transaction fees.

Although the major exchanges are still thriving and have strong bargaining power in listing coins, many people even feel that technology restricts the usability of decentralized exchanges and that they cannot surpass centralized exchanges and can only coexist with them. However, the asset trading attributes that blockchain naturally possesses make it possible for change to only be a matter of time.

This brings about a paradox: the better blockchain technology develops and the larger the trading volume, the more substitutable traditional centralized exchanges become.

  2   Uniswap+Ethereum=Binance Chain+Smart Chain

As a leading exchange, Binance was the first to realize the root of the problem and enabled the dual public chain model, successively launching Binance Chain and Binance Smart Chain.

Binance Chain was launched by Binance in April 2019. Its original intention was to support the operation of Binance's decentralized exchange (Binance Dex) and meet the high-throughput and low-latency trading requirements that are not inferior to centralized exchanges. In addition, users can also issue, use and exchange digital assets on this blockchain. Binance Dex not only inherits Binance's professional financial product modules, but also attempts to solve a series of security issues such as asset custody/repayment that have been criticized by the public for centralized exchanges. It enables users to control their own digital assets.

Binance Smart Chain (BSC) is a "parallel blockchain". The programmability of BSC can improve the scalability of Binance Chain, enabling it to use smart contracts and have the ability to match the Ethereum Virtual Machine (EVM). This means that developers can freely deploy DApps without having to spend a lot of effort on redevelopment. To some extent, BSC can be understood as a copy of Ethereum.

The recent DeFi craze has pushed Ethereum to the edge of its performance capacity, which has slowed down on-chain transactions and caused gas fees to soar. This situation not only raises the funding threshold for development, but also restricts the development of Ethereum Dex. The dual-chain design of Binance Public Chain will allow its users to develop DApps on BSC and benefit from Binance Dex's high-speed transactions. This model is similar to splitting Uniswap from Ethereum to solve the network congestion problem caused by high-frequency transactions.

According to BscScan statistics, when the transaction popularity on the BSC chain reached its peak on September 14, there were more than 400,000 transaction orders on that day, with an average Gas fee of only 0.00440346 BNB. Based on the currency price of $33/BNB on that day, the value of each Gas fee was less than $0.2. Also on September 14, the number of transaction orders on Ethereum was 1.08 million, with an average Gas price of 199.5Gwei. Calculated based on the default Gas value of 21,000, the transaction fee for each order was 0.004179 ETH (about $1.4). At this time, BSC's transaction volume reached 37.29% of the Ethereum network, but the transaction fee was only 14.29% of Ethereum.

Despite this, CZ has publicly clarified that BSC is not a direct competitor to Ethereum, but is designed to be compatible with Ethereum and provide more options for smart contract creators through cheaper gas fees.

  3   Private chain or public chain? The mystery of Binance’s nodes

When Binance Chain was first launched last year, the public had many speculations about the validator nodes that could receive transaction fee rewards. The most common speculation was that users could obtain verification privileges by staking BNB. However, after the public chain was released, CZ said, "Anyone can become a node, but to become a validator, more assessments are required," and "We do not disclose the identity of the validator, and the right to privacy is part of freedom."

According to the white paper, Binance decided to decentralize the nodes of BSC to a certain extent, sharing the block revenue by adopting a similar method of token holders' delegated verification as in EOS and Cosmos. However, the BNB staking data on BscScan shows that 21 nodes have pledged a total of more than 750,000 BNB, accounting for only 0.43% of the total supply, and there are 6 validator nodes with the same names as the validator nodes in Binance Chain (these 6 nodes are: Seoraksan/Ararat/Everest/Fuji/Aconcagua/Kita), and the identity background of these nodes is self-evident.

Binance responded that "currently, non-Binance nodes have become validators" and will expand the scale of staking in the future to allow more validators to participate. BSC is different from Binance Chain. Nodes do not have the right to review issuance, which means that project releases do not need to be reviewed.

In addition, unlike many projects that constantly issue new coins, almost all of Binance’s strategic initiatives are closely related to BNB. There are five major initiatives:

- Regularly destroy BNB;

- Provide trading discounts for users who pay trading fees with BNB;

- Commit to include the revenue from all new businesses in the BNB quarterly destruction statistics;

- Seeking to introduce DeFi to BSC and promote the adoption of BNB as a collateral asset;

- Improve the interactivity of BC and BSC, so that BNB can operate across chains without affecting its ease of use.

Binance also supports BSC projects by giving priority to listing coins. On the 24th, Binance Innovation Zone announced the launch of Binance Smart Chain (BSC) projects BakeryToken (BAKE) and Burger Swap (BURGER), and opened BAKE/BNB and BURGER/BNB trading pairs. BAKE and BURGER recharge channels are now open. Binance did not open its own DEX for listing coins, perhaps because it was worried that the review would be lax and it would become similar to Justswap of Justin Sun.

  4      Should the public chain of the exchange be responsible for the project?

As a decentralized development platform, Ethereum has always been relatively neutral, and Ethereum developers are not responsible for the price of the currency. Unlike Ethereum, Binance is a recognized exchange brand in the global cryptocurrency field and bears certain responsibilities for the price of BNB. Although Binance can issue a disclaimer for the projects it launches, it still cannot prevent users from viewing its various actions as a kind of credit endorsement.

As expected, within just two weeks, the projects on BSC have been criticized, and some investors have set up a "Binance Smart Chain Rights Protection Group". This is also the inevitable situation faced by centralized exchanges in their transformation to decentralized projects, that is, the company brand helps to quickly popularize a public chain that can compete with Ethereum, but this "blood relationship" makes it impossible for users to ignore the connection between the two. Sun Yuchen's TRON is very similar to this.

According to Deepchain, on September 19, the Bantiample team on Binance Smart Chain cashed out 3,000 BNB and ran away. The main developer of the team has deleted the Telegram account, and the project token BMAP has fallen by more than 90% in a single day. According to the project, BMAP is a copycat of AMPL, and each transaction a user participates in will reduce the total amount by 1%. Binance responded that like the projects on Ethereum, Binance Smart Chain has no right to know and control.

In addition, at the same time as launching BSC, Binance launched Liquid Swap, the first liquidity mining product based on a centralized exchange. The first batch of funds pools when the product was launched were USDT/BUSD, BUSD/DAI, and USDT/DAI. However, compared with DeFi projects on Ethereum, the annualized rate of return of liquidity providers is lower, and there is a lack of additional mining coin rewards, which is unattractive to cryptocurrency users and is tantamount to chicken ribs.

Binance said that in the future, the Binance Smart Chain community will continue to provide audit services for high-quality projects that have been deployed. In the future, there will be signs to distinguish between audited and unaudited projects for user reference. Although these audits do not represent the quality of the project, we have seen the phenomenon of running away on different public chains, so we hope that Binance Smart Chain can try its best to provide some public services in the field of public chains where a large number of anonymous projects have run away or users have been harmed due to code vulnerabilities. However, if audit services are provided, it will undoubtedly swing the balance back to the centralization side, and openness will be greatly damaged. Once problems occur in the projects that have passed the audit, Binance will be borne with greater responsibility.

Binance hopes to emphasize the concept of community and use community power to fight against maliciousness, which is the method used by mature ecosystems such as Ethereum. However, in the early days of Binance Smart Chain, community power was not mature, and the official could only take action personally, so there was sometimes confusion, such as CZ's deletion and repeated explanations of Twitter. In the face of centralized promoters, whether the community can form and have self-drive and enthusiasm is still a question mark in the future. (Special author: miaohash Editor: Wu said blockchain)

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