The Binance Myth: A Carnival of Digital Currency Exchanges?

Abstract : Even though Justin Sun, the "Jia Yueting of the cryptocurrency world", has fled, Binance still listed the virtual currency "Tron" he created for trading. In addition, as an exchange, Binance created and issued the virtual currency BNB, artificially creating scarcity through repurchase and destruction, thus owning nearly 15 billion yuan in assets.

This article comes from Sina Finance, and the original title is "Unveiling Binance's little secret: self-directed and self-acted "Pass the Parcel" game", and is authorized to be published by Wall Street Journal.

In the first half of 2017, the "ICO whirlwind" swept the world, skyrocketing 1,500 times in one year. This shocking increase also alarmed the government. On September 4, the government issued the "Announcement on Preventing the Risks of Token Issuance and Financing". ICO was identified as illegal fundraising in China and was banned completely.

However, trading venues registered in Hong Kong, led by Binance, have not been hit and are still using various tools to support ICO business. Relying on the protection of the financial free port, they are quietly performing a big harvest.

Some currencies are inherently worthless

This is not a joke. This is the official website of Dogecoin.

The Dogecoin, which was once launched for fun in January 2018, is no longer a joke. According to Forbes, the market value of Dogecoin has just reached $2 billion. In the past two weeks, the market value of this cryptocurrency has doubled.

"Dogecoin" was invented by two American programmers. They themselves admitted that they created this "currency" just for fun and it has no practical significance.

But the reality is that this worthless thing, like a "prop" in the hands of a pyramid scheme organization, has been endowed with all kinds of bizarre magical attributes and has been valued at US$2 billion by blind followers.

It’s not funny. The official introduction of the $2 billion “Dogecoin”

What exactly is ICO?

In essence, ICO is like issuing new shares, except that the underlying assets are changed from securities to digital cryptocurrencies.

Users use their own legal currency or other assets in exchange for tokens issued by the issuer, and such tokens are largely worthless pieces of paper. The only thing investors can get is a dream, a dream that a buyer who joins later will solve the problem at a higher price.

Almost all ICO projects cannot distinguish whether the issuer is illegally cashing out. Some ICO projects are just stories but cannot be implemented, and investors are extremely vulnerable to losses. Therefore, our country bans them.

However, ICO has not been banned abroad, and many domestic ICO projects have fled the country and turned to overseas issuance. After the issuance is completed, they are openly listed on digital currency exchanges. For example, Binance Exchange, the current global leading digital currency exchange, has launched nearly 200 digital currency trading pairs, of which more than 100 involve altcoins.

Note: We have previously reported that electronic currency exchanges such as Binance have invented a new way of playing, namely, currency-to-currency trading, which bypasses the government ban. Ordinary investors in China can still continue to participate in cryptocurrency trading.

The fundamental purpose of private exchanges established overseas is to make profits. One of Binance’s major sources of income is ICO issuance fees and exchange listing fees. For digital currency creators, as long as they can issue them, they will make a lot of money, and the same is true for Binance.

In this chain, no one can tell and no one cares whether the newly issued currency has value; the transaction itself is not regulated by anyone. Just like the example of "Dogecoin" mentioned above, a random story can easily "raise" a huge amount of money as long as it is packaged.

In the face of huge economic temptations, who would care about these things? Even if no one can clearly explain the difference between this and pyramid selling, no one can tell whether it is legal.

After a new currency is launched, the information disclosure of the project depends entirely on the project party's self-consciousness. For ordinary investors in the market, it is almost impossible to judge whether the new currency is really valuable. Speculators have only one thought in their minds, that is, I don't want to be the last one.

The following events are enough to give us a glimpse of the tip of the iceberg of the chaos in the cryptocurrency ICO market.

Do exchanges also issue ICO coins? If you can print money yourself, why not?

As a member of the blockchain industry, Binance also issued its own ICO product, Binance Coin (BNB), and launched it on the exchange. The total issuance is constant at 200 million, with 100 million issued to the public and never increasing. There is no doubt that Binance itself must be the largest shareholder of BNB. This is undoubtedly a typical case of being both a "referee" and a "player".

Binance Coin is a decentralized blockchain digital asset issued based on Ethereum. An article titled "ICO in 10 Minutes" states that a new currency can be separated out of the Ethereum platform with simple modifications. Just follow the steps in the article and the simplest ICO coin will be born.

Although the production principle of BNB cannot be speculated, Binance forcibly binds the use value of BNB.

Binance said that for users participating in transactions on the platform, no matter what tokens they trade, when they need to pay transaction fees, if they hold sufficient BNB, the system will give a discount on the fees they need to pay (50% in the first year, 25% in the second year, 12.5% ​​in the third year, 6.75% in the fourth year, and no discount in the fifth year), and calculate the equivalent amount of BNB based on the market value at the time, and use BNB to complete the payment of the fees.

In addition, in order to maintain the currency value, BNB also has a repurchase mechanism: 20% of the Binance platform's net profit for each quarter will be used to repurchase BNB, and the repurchased BNB will be directly destroyed. The purpose of this is to artificially create concepts and scarcity to facilitate speculation.

At present, BNB's market value ranks 15th among all digital currencies. Based on the current price of BNB at 143 yuan per coin, Binance already has 14.3 billion yuan in assets, and the cost is only the Binance coins printed by itself.

The whole process of exchanges supporting ICO coins and harvesting retail investors

According to data from the Binance Exchange, the new digital currency "Tron" (TRX) was only $0.0022 at the beginning of December last year, and rose to a peak of $0.2728 on January 4. The "100-fold monthly profit" once again refreshed the three views of the currency circle, and the total market value once entered the top ten digital currencies. The short-term surge in the price of "Tron" was caused by the exchange's marketing promotion activities.

TRON and Binance have an inseparable relationship. On August 22, 500 million TRON coins were snapped up on Binance Exchange, and they were sold out in 53 seconds. On September 4, the central bank began to crack down on ICOs, and founder Sun Yuchen chose to "run away with the coins" and "stay in the US", becoming the "Jia Yueting of the cryptocurrency circle".

As for Sun Yuchen's ICO journey, the process was rough and the methods were clumsy, so I will not go into details here. After he ran away, "Tron" became a veritable pyramid scheme coin (waiting for people to take over and seek relief) and an air coin (not even as valuable as air).

Under such circumstances, Binance still took the initiative to launch "Tron". From the following daily chart of Tron (TRX), we can see that the sluggish trading volume inexplicably rose in mid-December.

How can a pyramid scheme coin gain such market favor? It is reported that before the rise of TRON, Binance Exchange held a series of trading marketing activities to increase TRX trading volume, and even used Maserati and Mercedes-Benz as bait to induce users to trade.

Sina Finance learned that Binance Exchange also announced a list of winners on its official website. The top ten users had a trading volume of more than 20,000 bitcoins . There is no doubt that the transaction fee income from such a trading volume has already covered the reward cost.

The marketing campaign also successfully attracted the attention of investors, and the price continued to rise. On January 4, Justin Sun, the founder of Tron, tweeted that "a partnership will be established with a very famous company next week." Because of this unclear news, the price of Tron rose to its highest point.

The candlestick chart shows what happened next, with a drop of more than 70% from the high. As of September 27, 2017, when Sun Yuchen ran away, it was found through the digital currency information website etherscan that the top five wallets held 90.9331% of the TRON currency, while the proportion of retail investors in the market was only 9%, with a circulating market value of less than 45 million yuan. There was even a wallet that held more than 50% of the TRON currency, but the owner of the wallet was unknown.

However, as of January 15, the holdings of Tron have changed significantly, with the largest wallet holding only 34%. Investors speculate that Justin Sun has cashed out nearly $300 million from the highs.

From participating in ICO issuance to the subsequent pull-up, exchanges play an important role. The media previously reported that the reason why overseas exchanges like to promote tokens so vigorously is, on the one hand, to obtain high handling fees, and on the other hand, the token project team will generally give a certain amount of tokens as listing fees, that is, the exchange itself is a holder of the relevant tokens, which is undoubtedly killing two birds with one stone.

Even in regulated stock exchanges, seven losses, two draws and one profit occur. How many people will lose all their money in high-risk ICOs? After the platforms flee overseas, in an unregulated environment, how far can this irrational speculative feast go?