Binance BNB: From Exchange Token to Blockchain Ecosystem King

Binance BNB: From Exchange Token to Blockchain Ecosystem KingBinance, a cryptocurrency exchange founded less than five years ago, has quickly become the worlds leading cryptocurrency trading platform, thanks to its keen market insight and innovative spirit. It has also built a strong BNB ecosystem

Binance BNB: From Exchange Token to Blockchain Ecosystem King

Binance, a cryptocurrency exchange founded less than five years ago, has quickly become the worlds leading cryptocurrency trading platform, thanks to its keen market insight and innovative spirit. It has also built a strong BNB ecosystem. Its core asset, BNB, has transformed from a simple exchange token to a key engine driving the entire ecosystem, its value continuously rising with the expansion of the BNB ecosystem.

BNB Quarterly Burn: A Market Indicator

In traditional securities markets, there is a saying: Ducks know when the river is warm in spring. This means that brokerage stocks are like a barometer of market sentiment. They often start to move first, pointing out the direction of the market when there is a turning point. In the cryptocurrency market, platform tokens undoubtedly play a similar role. Changes in market trading activity can be reflected in their value fluctuations quickly and directly.

This is because most platform token economic models incorporate a buyback/burn/dividend design based on exchange revenue. BNB, Binances platform token launched in 2017, has always been at the forefront of the platform token sector and remains the most watched by the market.

In terms of holder rights, Binance is the first platform to adopt the buyback and burn model. Its original white paper stipulated that Binance would use 20% of its quarterly company profits to buy back and burn BNB until the total amount was reduced to 100 million. In 2019 and 2020, some details were updated, such as changing the base to Binances quarterly trading volume, abandoning the teams holdings of BNB and adding them to the BNB quarterly burn plan starting from the 8th burn, and the Binance Anti-Blackhole Plan, which compensates users who have lost assets due to operational errors during asset transfer.

Understanding the burn plan is crucial as it's the most basic but also the most core element reflecting BNB's value at this stage. In this regard, industry researchers often use a relative indicator to evaluate and observe it, namely Price to Burn. In Chinese, it is often replaced by Price to Sales Ratio. Of course, this is not the same as the traditional Price to Sales Ratio. Specifically, the formula is Platform Token Market Capitalization/Value Burned in the Past Year.

Taking the 14th BNB burn announced by Binance on January 19, 2021, as an example, based on a BNB price of $47, the circulating market capitalization and total market capitalization after the burn were $6.631 billion and $8.015 billion, respectively. Additionally, the total burn value in the previous four burns over the past year reached $327 million. Therefore, in terms of Price to Burn, we get 19.12 for the Floating Price to Burn (based on circulating market capitalization) and 23.11 for the Diluted Price to Burn (based on total market capitalization). This can be understood as follows: assuming that platform trading volume remains at the same level in the future year, it would take 19.12 years to burn the remaining circulating BNB and 23.11 years to burn the remaining total amount.

BNB Burn History

| Burn Time | Burned Amount | Burn Value | Circulating Market Cap After Burn | Total Market Cap After Burn | Floating Price to Burn | Diluted Price to Burn |

|---|---|---|---|---|---|---|

| October 2017 | 1,198,800 | | | | | |

| December 2017 | 4,250,000 | | | | | |

| January 2018 | 4,300,000 | | | | | |

| April 2018 | 4,300,000 | | | | | |

| July 2018 | 4,500,000 | | | | | |

| October 2018 | 4,800,000 | | | | | |

| January 2019 | 4,800,000 | | | | | |

| April 2019 | 5,000,000 | | | | | |

| July 2019 | 5,200,000 | | | | | |

| October 2019 | 5,400,000 | | | | | |

| January 2020 | 5,600,000 | | | | | |

| April 2020 | 5,800,000 | | | | | |

| July 2020 | 2,207,812 | | | | | |

| October 2020 | 3,619,888 | $165 million | $6.631 billion | $8.015 billion | 19.12 | 23.11 |

Source: Binance

Chart: Cointelegraph

This BNB burn saw a 61% increase in the amount compared to the previous quarter (Q3 2020). It was the largest burn in the 14 burn records. The total amount has now been reduced to 85.27% of its original total issuance (200 million), meaning that approximately 15% of BNB has permanently disappeared.

Behind the data is a reflection of the platforms significant revenue growth. If we calculate according to the 20% rule of quarterly profit (which actually changed to 20% of trading volume starting in Q3 2019), Binances profit in Q4 2020 should be a historical high of nearly $800 million. From a valuation standpoint, BNBs current Price to Burn is at a low to reasonable level. Whether based on circulating market capitalization or total market capitalization, it is below 25 (which can be compared to the traditional price-to-earnings ratio P/E to some extent) and lower than the average for all burns. This means that Binances trading business can fully support BNBs current valuation, and its future growth potential is very strong.

Launchpad and Launchpool Run Side by Side to Benefit Binance Users

Beyond its initial trading business, Binance has continuously iterated over the past few years, expanding its business footprint to other areas, with Launchpad and Launchpool being major components.

Binance launched its Launchpad business on a large scale in early 2019. The industry often uses the term IEO (Initial Exchange Offering) to describe it, which means that the exchange supports project launches and raises funds in the form of platform tokens. Binance was not only the first platform to create the IEO, which was quickly imitated by many exchanges, but its IEO platforms popularity also directly boosted the then-depressed market sentiment. According to data from cryptorank.io, since January 2019, Binance Launchpad has launched 19 projects, raising a total of $71.07 million, with an average of $4.18 million raised per project. In terms of return on investment, the vast majority of these projects have earned IEO investors substantial profits after listing on Binance. The average ROI is currently close to 10x, with the average historical maximum ROI exceeding 15x. Comparing Binance IEO to Huobi and OKEx based on the same dimension, Binances IEO performance is the best, with every metric significantly surpassing its competitors.

Comparison of IEO Platforms

| Platform | Project Count | Total Fundraising | Average Fundraising | Average ROI | Average Historical Maximum ROI |

|---|---|---|---|---|---|

| Binance | 19 | $71.07 million | $4.18 million | 10x | 15x |

| Huobi | 11 | $12.5 million | $11.36 million | 5x | 10x |

| OKEx | 8 | $40 million | $5 million | 3x | 8x |

Source: cryptorank.io

Chart: Cointelegraph

While supporting high-quality blockchain projects, Binance IEO also powerfully empowers BNB itself. BNB is the only fundraising token in the entire process. Prospective investors are required to hold a certain number of BNB for a specified holding period. This directly leverages the utility of the platform token and provides a positive impact on the BNB price from both the supply and demand sides.

Launchpool is a DeFi mining platform under Binances Launchpad. In Binances own words, it's Binance New Coin Mining - A Safer Asset Reward Model. Last June, the rise of liquidity on Ethereum led to the development of DeFi, which triggered a boom in new projects. Binance