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What’s Behind Binance Coin Recent Growth?

10 March 2021 12:25, UTC
What’s Behind Binance Coin Recent Growth?
By Bogdan Vinogradov

Binance is the largest cryptocurrency exchange in the world, with a daily volume approaching $29 bln. It is no surprise that the projects of this giant, which was born in 2017, are most often successful. And above all, we are talking about Binance Coin (BNB), Binance's own cryptocurrency.

‘Home’ is best

BNB was once a ERC-20 token, but in 2019 it migrated from the Ethereum network to its own Binance Chain blockchain. It is now a BEP-2 token. The Binance DEX decentralized exchange and the recent Binance Smart Chain, a platform for creating dApps working with smart contracts, operate on the basis of the same blockchain.

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The main purpose of BNB is internal operations on the exchange: traders who use it pay a reduced commission for a certain period. In addition, the token is used as a native token during IEO on the Binance Launchpad, and, in contrast, to convert the "dust" on accounts: you have bits of any currency left — you press a button and turn them into BNB, not paying a commission. You can also pay with BNB on one of the platforms supporting this token.

History of success

The ICO, held on July 3, 2017, just days before the launch of the exchange, raised $17 mln. Of course, nowadays you won't surprise anyone with such volumes, but you can't even call it “modest”. In total, there were 200 mln BNB tokens, half of which were sold during the initial distribution, and the rest were reserved for various purposes – the scheme is typical. Mining/staking is not provided, the token will have to be bought or received as a salary, being an employee of Binance.

Initially, BNB cost only 10 cents per token. But the relevant marketing campaign, combined with the growth of the capital of the exchange, paid off. Soon BNB began to trade much more expensively, and the capitalization volumes began to grow to billions of dollars. Surprisingly, the rate of this token continued to rise even during the bitcoin recession in 2018.

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But the real boom has begun in recent weeks. On February 9, it was $100 for one BNB token – that is a thousand times more than the original price. And the movement "to the moon" did not stop there. This cryptocurrency peaked at $338 on February 20. This was followed by a correction and BNB is worth $227 at the time of writing.

Burn it, baby

What can be done with a successful digital asset that is in high demand and is generating more and more profit? Naturally — burn it! Soon after the launch of the coin, it was announced that Binance would periodically spend up to 20% of its profits to redeem and “burn” its own cryptocurrency until its amount is halved, to 100 mln. At first glance, the absurd decision was not at all unprecedented and was based on the ironclad logic of the fight against inflation – the lower the supply of something of value, the higher the demand will be.

This policy continues to this day. On January 19, 2021, the exchange "burned" slightly less than 3.7 mln of its tokens worth about $166 mln – a kind of record due to the success of Binance against the backdrop of another boom in the cryptocurrency market. True, the head of the exchange, Changpeng Zhao, is still dissatisfied with this rate — after all, even at such a tempo, it will take another 27 years to burn the BNB remaining to the cherished mark. That is why he does not rule out that in the future they will have to accelerate, even if it means a discrepancy with the growth rates of the exchange itself.

Mutual dependence

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It should be understood that the BNB success story is primarily the success story of the Binance exchange and cryptocurrencies in general. Prospects are also connected with this: if suddenly something happens to this exchange, then depreciation cannot be avoided. This possibility cannot be completely ruled out. History knows many sad examples like the collapse of the Mt.Gox exchange, and the legal uncertainty regarding cryptocurrencies forces the Binance management to lead an almost conspiratorial lifestyle with a constant change of countries and headquarters.

However, nowadays crypto optimism still reigns, and therefore I do not want to believe in the collapse of the largest exchange on the market. And the measures to create an artificial shortage of BNB inspire hope that the price of this token will rise in the future, or at least not fall too much during the correction.



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