Binance’s native token, BNB, is reaching all-time-high after all-time-high and monopolizing headlines around the world. One of the reasons is the increased popularity of the Binance Smart Chain. Nevertheless, “increased popularity” might be underselling it. According to Arcane Research’s data, the Ethereum competitor is exploding at an incredible rate.
On March 12th, the Total Value Locked in the Binance Smart Chain ecosystem was $12B. At the time of writing, it’s $30B. That means it has more than doubled in just one month. And the project is just starting, the Binance Smart Chain was unveiled in September 2020.
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Let’s compare that with the market leader in the DeFi space, on Sunday the TVL on Ethereum reached $51B. Back on March 12th, the TVL in the Binance Smart Chain was 30% of the TVL on Ethereum. One month later, it’s 60%.
These are staggering numbers. To understand what’s causing them, we have to refresh our knowledge.
What Is The Binance Smart Chain Exactly?
To power the Binance DEX, a decentralized ecosystem in which users can trade with each other, the leading centralized exchange launched the Binance Chain. A basic blockchain that doesn’t support smart contracts, thus can’t hold decentralized applications, or Daaps.
In September 2020, Binance unveiled a parallel blockchain to complement their original chain. Some of the Binance Smart Chain characteristics are:
- It supports smart contracts and Daaps charging a fraction of Ethereum’s commissions.
- It’s compatible with the Ethereum Virtual Machine. That means developers can export their Daaps without hassle.
- If the Binance Chain goes offline for whatever reason, it will not affect the Binance Smart Chain.
- It uses Proof-of-Staked Authority as a consensus algorithm. Validators must both stake BNB and confirm their identities and put their reputation at stake.
There are already multiple projects using the Binance Smart Chain as a home base, among them:
- The Aave Protocol
- Swipe Wallet
- The Seascape Network
- 1inch Network
- Lien’s crypto-native Option protocol
- Dforce Network,
- the on-chain decentralized exchange/liquidity provider Dodo
The main one, though, is Pancakeswaps.
What Is Pancakeswaps Exactly?
A crypto-to-crypto decentralized exchange that runs on the Binance Smart Chain and uses BNB for their liquidity pools. Currently, Pancakeswaps trades around $1B a day. That puts it right in line with the much more well-known Uniswap. As you might suspect, Uniswap runs on Ethereum.
CAKE price chart on Binance | Source: CAKE/USDT on TradingView.com
According to crypto data provider Messari, Pancakeswap’s CAKE was the DeFi related token that performed the best during 2021’s first trimester. Using CAKE for your transactions gets you rewards and lower fees. Staking CAKE gets you governance rights.
The reason for Pancakeswap’s surge in popularity is simple, Ethereum’s gas commissions are through the roof right now. Making any transaction in Pancakeswap is considerably cheaper than making it in Uniswap.
The Rise Of BNB
The price of BNB and the exponential increase in Binance Smart Chain’s activity are completely linked. Each one is both cause and effect. As Bitcoinist said in February, “BNB has historically been offered by Binance as a utility token for discounted trading fees on their platform. However, with the release of Binance Smart Chain in September 2020, it has become a serious potential competitor with Ethereum in the DeFi space.”
Market cap BNB, $ (Calculated by TradingView) | Source: TradingView.com
With a $86B market cap, BNB is effectively the third-largest cryptocurrency on the market. At the beginning of 2021, it was trading at around $40. At the time of writing, it has a $560 price tag, with a $610 all-time-high earlier in the week.
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The caveat to all of this is that every quarter Binance burns BNB tokens, which irremediably increases the price of the user’s coins. Q1 2021 ended in March, so the 15th BNB burn could be any day now.
How will this highly awaited event affect BNB’s price? And, in turn, how will that affect Binance Smart Chain’s activity? Exciting months ahead for supporters of the world’s biggest cryptocurrency exchange.
Featured image by UnSplash, Charts from TradingView.com