Cryptocurrency exchanges have become key points of access to the entire ecosystem. They are the initial point of entry for most investors and users of these digital assets, and as such, they are big business, and also fiercely competitive.
Since the boom of Bitcoin and related cryptocurrencies, the likes of Coinbase in the US, OKEx and Bitfinex in Hong Kong, Huobi in Singapore, and others, have all become household names and important players in the growth and evolution of the cryptocurrency space.
However, there is one name that sits a top all of these - Binance. Binance is still not two years old and yet it has launched itself quickly to the top of the cryptocurrency exchange tree with some innovative decisions, as well as a native utility token that hits a lot of the right notes for its users.
The Binance Coin (BNB) has been a major part as to why Binance has succeeded as much as it has in such a short time. The token was introduced for a small, but significant reason, and from there, its utility and worth has exploded almost as much as the exchange itself.
The question that needs to be asked about this case study of a cryptocurrency exchange is: Does Binance’s growth emanate from that utility token, or, is the token a by product of a successful company? And, should this be a model going forward for cryptocurrency exchanges?
A precedent has been set by Binance, and in this highly competitive market, it remains to be seen if they can stave off challengers, and whether those challengers will innovate, or imitate.
Unprecedented growth
The cryptocurrency space is renowned for insane growth, and Binance is just another example of that. Founded in early 2017 by Changpeng Zhao, Binance held an ICO in July of that year for its BNB token. This saw them raise $15 million in funding in which was a shrewd and timeous decision taking into account the excitement around ICOs at that time.
Then, just 143 days after launching, Binance was ranked as one of top three crypto exchanges globally; it was already making news in its first six months of existence. The first six months of 2018 also saw some incredible growth as the exchange went from boasting two million users to having over 10 million, and with that growth, they are predicting to make $1 billion profit.
Reasons for the rise?
Clearly, Bianace got off to a good start with a successful ICO on its BNB token, but it also has done a few innovative and important things as a major exchange that has helped its growth exceed expectations.
On a technical side, Binance has the ability to handle 1.4 million orders per second, combined with its ability to host 20 million users, and multilingual support, the exchange has huge capacity when it comes to taking on more users without slowing or stalling.
It has also moved its base of operations to the cryptocurrency friendly island of Malta in order to benefit from beneficial regulations and laws for the nascent blockchain technology.
Binance has also become renowned for accepting and onboarding new cryptocurrencies at a rapid rate. This has however also caused controversy as it was speculated that new blockchain products were paying upwards of 400 BTC to be listed on the exchange.
However, this was rebutted by Zhao in a tweet as well, indicating that Binance does not list s**t coins regardless of any fee they may offer to pay.
Still, the fact that the exchange is happy to accept new coins at a much quicker rate than an exchange that trades fiat pairs with strict KYC/AML regulations means that Binance can also rapidly grow its offerings of coins and attract more business.
Then of course there is the BNB token, which could well be the secret to all of this success. BNB was introduced as a utility token with the benefit being that users could reduce the trading fees on the platform by 50% when using it, and it also offered liquidity to these customers.
Built on the BNB
The Ethereum-based token has had an interdependent relationship with the growth of the exchange as, with more users coming to Binance, there has been more growth of the token, and that in turn has spread the word about the reduced fees, and further helped grow the entire operation exponentially.
"BNB is the fuel in Binance's engine,” He-Yi, Binance co-founder explained to Forbes. “It is well known that our users can reduce trading fees by using BNB. But it was during our token sale that we acquired our earliest batch of Binance users, and these BNB community members have greatly contributed to our growth.”
“Because we have a strong vision for the industry and clear values at Binance, as a company, we're capable of success with or without the token. But it's only through BNB that we've built such a strong community, and this is the secret of Binance's growth.”
The ever increasing price of BNB can linked to ever increasing daily trade volumes, which subsequently can be tied to new listings on the exchange platform. So more users means more tokens, and more liquidity, helping the business expand.
Then, with this growth has come more utility for the token. Now, not only does it help reduce the trade fees, it also being used as a voting token for what has been dubbed 'Community Coin of The Month', an idea came about from the suggestion of a Binance community member in the official Slack channel, and is a voting system using the BNB for new coins to be listed.
Finally, the token is also used for Binance’s 'LaunchPad', another product aimed at helping startups raise capital on their platform. But all of these utilities again boost the benefit of BNB, and essentially, make it much more of a valuable and useful coin than a discount coupon.
The evolution of BNB’s use is also starting to go beyond a native exchange token. The token has cracked number 14 in terms of market cap, and it has the 19th biggest volume traded on a 24 hour basis.
“As we've grown the Binance and blockchain ecosystem, we've also seen more recognition of BNB's utility by the community and increasingly more use case adoption,” He-Yi added. “BNB is accepted as payment at various merchants through POS systems (eg. Pundi X, TravelbyBit), and for goods and services through Crypto.com – to name a few. The development of BNB isn't limited to just Binance; it's embraced by the wider community."
Other uses are also linking broader blockchain businesses to Binance as their goalposts shift to be more community-oriented.
Antoni Trenchev, co-founder of NEXO, whose company shares a relationship with Biannce, and Zhao, explains why they decided to accept BNB as collateral on crypto-backed loans.
“Binance is an efficient platform which we love and use both as individuals and Nexo as an institution. They are one of the few companies that conducted an ICO and actually delivered on their promises,” Trenchev told Fobes. “The reason we like the BNB Coin is multifaceted. It is a great coin that is as close to a safe haven in the crypto space as it gets. Look at it performance since January it has outperformed even Bitcoin. That is because a real company with a real life product is providing it.”
Trenchev raises an interesting point. Bitcoin’s adoption into business and everyday use has been slow and cumbersome, for a number of reasons, but of those reasons not many would have put down its decentralized nature as a crutch, that is meant to be a benefit. But, Trenchev inadvertently indicates that a well run blockchain company could be the future for cryptocurrency adoption.
A new precedent?
Cryptocurrency exchanges will continue to be important junctures between users and the broader blockchain ecosystem when it comes to accessing and utilizing digital currencies. As like any part of this nascent space, there needs to be time to grow, innovate, and establish.
Binance has set a new precedent for doing things, and is continuing to innovate with news of their decentralized exchange coming soon. It is a model that has worked to elevate them quickly to the top of a space that has very little history or way of doing things, and because of this, it could be setting new precedents.
However, in a space where companies, ICOs, and businesses who have tested the blockchain waters have quickly come and gone, Binance needs to prove its model will last not the next five years, but rather the next thirty, if it is to be considered a true success story.
