Binance has long been in the spotlight of the cryptocurrency industry as its peculiar company, an exchange that skyrocketed from humble beginnings in 2017 to an unprecedented powerhouse in the market. Led by CEO, CZ Zhao, Binance has surpassed all expectations of what a cryptocurrency exchange moving between jurisdictions could accomplish in an emerging market full of uncertainty.
Where Binance has really made its impact known is with its penchant for innovation and pushing the boundaries of what services an exchange can offer. Exchanges are polarizing in the crypto sphere, and rightfully so, but Binance has not only produced one of the best market performing cryptocurrencies — its native BNB coin — but recently launched a DEX on its native Binance Chain — the exchange’s own blockchain.
Coinciding with recent moves like CZ Zhao’s public delisting of BSV, the controversial ‘Bitcoin Satoshi’s Vision’ run by polarizing figure Craig Wright, the launch of their Singapore exchange, and its mainnet swap of the BNB token from Ethereum to the Binance Chain, Binance’s new blockchain is an intriguing development for one of cryptocurrency’s flagship firms.
The Binance Chain and Competing With Public Blockchains
Binance officially announced the ‘Binance Chain,’ a public blockchain focusing on the exchange of digital assets, early last year. Since then, the concept has undergone some optimizations and changes that have transformed the public blockchain into a token launching and trading platform, reportedly attempting to lure crypto projects away from Ethereum and to its Binance Chain — with the hopes that its massive trading business can prove an attractive bait.
The draw of Binance’s exchange business does have some explicit advantages. Recent projects that have launched on the exclusive ‘Binance Launchpad’ have raised millions of dollars in mere minutes. For example, BitTorrent’s sale on the launchpad raised $7.2 million in under 15 minutes, and more obscure project, Fetch.AI, hauled in $6 million in 22 seconds.
The Binance Chain has some gravitational effects of its own on market prices. Recently, Mithril, an Ethereum-based social media platform, announced it was migrating its tokens onto the Binance Chain, sparking a 66 percent surge in the token’s price.
Effects on market prices and crowdfunding draw aside, Binance Chain and the recent launch of the much-anticipated DEX on the chain ahead of schedule is indicative of Binance’s vision for the future. Binance intends for Binance Chain and its DEX to become the foremost option of crypto platforms and traders for decentralized swapping of tokens, fueled by its BNB ecosystem.
However, the chain is not truly decentralized yet, and the consensus is formed via a federation of large validators and an eventual move to proof-of-stake.
Many industry observers view decentralized exchanges (DEXs) as the inevitable future of token swaps considering the endemic problems of centralized exchanges, but DEXs have negligible trading volumes to their centralized counterparts still.
Binance Chain and its DEX are explicitly designed for speed and performance of trades, not smart contracts to compete on the broader perspective taken by Ethereum. While the emerging competition on platforms like Ethereum — such as Airswap — are competitors to Binance’s DEX, Binance seems to be banking on the fact that incentives and their trading dominance should enable the Binance Chain to mitigate any potential market share loss should token swaps transition to DEXs in the long-term.
Binance will also face rising competition from other exchanges looking to build DEX platforms. Both OKEx and Huobi have discussed standalone DEXs as part of their future plans, with OKEx, who is also based in Malta, set to launch their platform in the early summer.
As exchanges look to put the well-founded concerns of their centralized models and security risks behind them, DEXs present a compelling solution. Centralized exchanges models are not going away anytime soon, but we may be seeing the early stages of an expansive trend towards more decentralized trading and financial platforms.
Extending Their Fiat-to-Crypto Services, KYC/AML, and Looking Ahead
Binance has not stopped exclusively with the development of Binance Chain. They are pushing into new jurisdictions, launching a fiat gateway in Singapore and providing credit/debit card purchases for users on its main exchange using Simplex as the payment processor.
Binance has even partnered with blockchain forensics analysis companies CipherTrace for improved KYC/AML processes as part of its most recent compliance push. The exchange also works with real-time blockchain analysis company Chainalysis and KYC firm IdentityMind.
Add in other facets of Binance’s business such as strong project backing with its Binance Labs incubator, such as with Nym Technologies, and the exchange’s work with its Blockchain Charity Foundation and Binance’s widening focus in the industry becomes more clear.
The embark into a DEX-focused business model in the long-term has several advantages for Binance also. Binance DEX does not hold customer assets, and Binance Chain supports a suite of other wallets outside of its TrustWallet — such as several hardware wallets. Binance did not receive VC funding either, which has granted them broad freedom to pursue the path that they want, fueled by the exchange’s climbing profits.
Additionally, Binance occupies a unique position regarding regulatory developments. With its home firmly in the crypto haven island of Malta, Binance can operate with more flexibility than most exchanges today. However, the regulatory landscape around the world is still uncertain at best, and Binance’s push into its DEX may prove a prudent business decision for multiple reasons — one of them being the growth of their exchange business without the centralized liabilities of its current form, such as security threats of being a custodial exchange for customer funds.
Binance deftly circumvented trading fiat currency pairs in the early stages of the cryptocurrency boom following late 2017, enabling them to remain outside of the jurisdictional ire of governments, particularly the U.S. Combined with its push into better compliance, and Binance seems well-positioned to avoid any regulatory catastrophes anytime soon.
What’s clear is that Binance has an unconventional approach to traditional notions of Silicon Valley class startups. Speculation has highlighted how Binance may eventually transition their DEX to the control of BNB users, and as cited by Pete Rizzo in Coindesk, would be a ‘viable crypto-native exit strategy’ different from building the business until an eventual IPO.
Whatever the case may be, Binance has solidified itself as a mercurial case study in a business model not because it is a powerhouse with an unconventional approach, but because it is a peculiar company in an even more obscure market — cryptocurrencies.