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Binance Coin (BNB) has an intriguing backstory that traces back to its founder, Changpeng Zhao, also known as CZ. Born in China, CZ moved to Canada at the age of 12. His fascination with technology blossomed during his teenage years. After studying computer science, he started his career at Bloomberg in 2001. By 2005, CZ had ventured into the entrepreneurial world, creating an IT startup that built trading systems for stock brokers.
CZ’s foray into the world of cryptocurrency began in 2013 when he learned about Bitcoin during a poker game. This discovery led him to immerse himself in blockchain technology and cryptocurrencies, even going as far as selling his apartment to invest in Bitcoin. In 2017, CZ established Binance and introduced BNB through an initial coin offering (ICO). Initially, BNB was designed to offer discounted trading fees on the Binance exchange. However, it quickly evolved to become a crucial part of the Binance platform and its ecosystem.
By 2018, a mere six months post-launch, Binance had ascended to the position of the world’s largest cryptocurrency exchange by trading volume. As Binance pursued aggressive global expansion, it encountered increased scrutiny and regulatory actions from authorities around the globe. Numerous countries issued warnings or implemented restrictions on Binance’s activities.
Key Fundamental Data
Here are some crucial metrics to consider when evaluating potential cryptocurrency investments:
Daily Active Users (DAU): According to TokenTerminal, BNB currently averages around 830,000 daily active users, reflecting a 39% decrease year over year. Despite this decline, BNB’s DAU remains significantly higher than major cryptocurrencies like Bitcoin (380,000 DAU) and Ethereum (432,000 DAU).
Fees and Revenues: Binance operates on a stable and sustainable revenue model, with the majority of its income derived from transaction fees. Former Binance CEO Changpeng Zhao disclosed in 2022 that 90% of the company’s earnings come from these fees, which include purchase fees (varying by payment method), trading fees, and withdrawal fees.
Market Cap: BNB is the largest exchange token by market capitalization, with over $77 billion invested in it. This ranks it just behind BTC, ETH, and USDT in overall market cap. Since 2023, BNB’s market cap has more than doubled, significantly outpacing other exchange tokens such as LEO ($5.2 billion), CRO ($2.3 billion), and OKB ($2.2 billion).
Market Analysis
Market Size and Growth: Evaluating the market involves understanding its size, growth rate, and customer demographics.
Problem Solved: Binance meets crucial needs in the cryptocurrency market by providing liquidity, access to a wide range of cryptocurrencies, user-friendly interfaces, and innovative financial products. Its offerings cater to both novice investors and seasoned traders, including features like futures trading, staking, and savings accounts.
Customers: Binance serves over 200 million users, predominantly aged 25 to 34. More than half of these users have a college education, and a significant majority (95%) are male. The platform is also heavily utilized by institutional investors, with Binance reporting that 100 million of its 130 million users were institutional as of late 2022. According to Binance Research in 2021, 48% of users identified as hobbyists, while 15% relied on trading as their primary income source. Binance operates in over 180 countries, with Russia and Turkey being its largest markets.
Value Creation
Using Binance grants users access to high liquidity and a broad selection of cryptocurrencies. Furthermore, engaging in financial products such as futures trading, staking, and DeFi opportunities can provide additional income streams.
Market Structure
The cryptocurrency exchange sector is relatively mature, with Binance positioned as the clear leader. It commands the highest trading volumes and enjoys global popularity. In 2022, Binance reported an annual revenue of $12 billion, significantly surpassing its competitor Coinbase, which earned $3 billion.
Competitive Advantage
Company Moat: How robust is Binance’s market position, and can it fend off competitors?
Technology/Blockchain Platform: BNB initially launched on Ethereum but now operates on Binance’s proprietary blockchain, BNB Smart Chain (BSC), introduced in 2018. BSC has become the third largest blockchain by Total Value Locked (TVL), with $4.4 billion secured.
Lead Time Advantage: Although Binance wasn’t the first cryptocurrency exchange—it launched nearly eight years after Bitcoin was created—it rapidly grew to become the largest exchange and has maintained that dominant position ever since.
Token Mechanics
Favorable for Long-Term Investors: Is the token designed to benefit long-term holders?
Token Necessity: BNB is vital to the Binance ecosystem. Beyond offering discounts and incentives for exchange users, it functions as the utility token for Binance’s blockchain network, BNB Smart Chain (BSC).
Value Addition: BNB provides more utility than a standard exchange token by being deeply integrated into the broader Binance ecosystem.
Decentralization: While Binance operates as a centralized entity, certain products like Binance Smart Chain incorporate some decentralization features. Nonetheless, its financial products remain centralized.
Token Supply
BNB originally had a supply of 200 million tokens, but this has decreased to 147,583,017 due to Binance’s quarterly token burns.
Public Exchange
BNB is available for trading on prominent exchanges, including Binance, KuCoin, and OKX.
Conclusion
Binance benefits from a large user base and a well-developed ecosystem, supported by a revenue model heavily reliant on transaction fees, which scales with rising trading volumes. As a core component of Binance’s platform, BNB is poised to gain from the company’s expansion.
Nevertheless, Binance is under considerable regulatory scrutiny globally, presenting notable risks. These regulatory hurdles could result in operational restrictions, financial penalties, reputational harm, and potentially impact BNB’s value.
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