Many investors dismiss BNB as simply "the Binance coin"

Many investors dismiss BNB as simply "the Binance coin", but that designation fails to recognize its broader value unlocks.

Many investors dismiss BNB as simply “the Binance coin,” but that designation fails to recognize its broader value unlocks. While BNB was initially launched as the native token of the Binance Chain (now the BNB Smart Chain), and its early token burns were tied to Binance’s quarterly profits, BNB is evolving into a decentralized asset with multiple use cases and reasons for economic value.

While BNB may enjoy some value accrual from the expansion of Binance, its token supply model and the development of the BNB Chain offer two independent sources of value. First, BNB serves as a store of value through quarterly and fixed-ratio BNB burning mechanisms. Second, it powers smart contract functionality via the BNB Smart Chain, which has become a growing hub for DeFi and gaming applications.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

As the cryptocurrency market continues to grow, so too does the discussion around different tokens' value propositions. Often, narrative and community are crucial components of a token's success.

One token that has benefited from a unique narrative and a consistent token burn is BNB. Despite being launched by Binance in 2017 as part of an Initial Coin Offering (ICO), BNB is not a security token and is not sold directly by Binance to the public.

Instead, BNB is sold on third-party exchanges, such as Binance.com, Huobi and OKX, and its price is determined by market forces of supply and demand.

Despite being the token of the Binance ecosystem, BNB is not governed by Binance, and the exchange’s role is limited to buying back and burning a portion of the gas fees to return value to token holders.

BNB’s burn mechanism also serves to differentiate it from almost every other cryptocurrency. Let’s compare BNB to BTC, ETH and SOL:

Bitcoin’s supply is limited to 21 million coins, and it’s generally recognized as the preeminent store of value asset in the cryptosphere. However, any change in the Bitcoin code (i.e., increasing the supply) would need to be agreed upon by the majority of the network, which would prove exceedingly difficult with bitcoin's level of decentralization.

Comparatively, BNB’s burn has already been modified from its original whitepaper so there is no guarantee it won’t be changed further. This is the tradeoff with an aggressive token burning strategy.

Source: bnbburn.info

While Bitcoin commands the most attention as a store of value asset due to its first mover advantage, market cap and a robust, decentralized network of miners, BNB’s token supply model and the development of the BNB Chain offer two independent sources of value.

As for smart contract functionality, that’s where Ethereum reigns supreme with DeFi protocols like Aave (AVAX), Balancer (BAL) and Keep3r Network (KP3R) all launching on the Ethereum network first before expanding to other blockchains.

Comparatively, the BNB Smart Chain has become a growing hub for DeFi and gaming applications, with Old Time Money (OTM) and StepN (GMT) among the most popular tokens.

Still, it’s worth noting that BNB’s DeFi protocols haven’t reached the same level of adoption or mindshare as their Ethereum counterparts.

Moreover, BNB’s ecosystem is largely limited to international users, as the token is mostly unavailable on U.S. exchanges. Despite this setback, BNB has managed to achieve a ~$100B market cap with support from traders and institutions around the world.

As U.S. crypto regulations ease and major exchanges like Coinbase (COIN) expand their token offerings, BNB’s re-entry into U.S. markets could be a significant catalyst for further growth.

With several headwinds facing Ethereum (namely layer 2 fragmentation and inflationary concerns), BNB’s One Chain Initiative provides a viable alternative to developers and web3 applications.

Now, it isn’t all rainbows and butterflies with BNB. Investors should still consider the risk that its decentralization push is only a marketing stunt, as well as the ongoing regulatory battles over Binance’s know-your-customer (KYC) policy and other issues.

But with Richard Teng now at the helm of the exchange, Binance and BNB’s next chapter will likely be focused on compliance and working with regulators/exchanges to increase access for the BNB token.

With BNB mostly unavailable on U.S. exchanges, the token has still achieved a significant market cap with support from international traders and institutions. As U.S. crypto regulations ease and major exchanges like Coinbase expand their token offerings, BNB’s re-entry into U.S. markets could be a significant catalyst for further growth.

Investors can learn more about and read the Trust prospectus at ospreyfunds.io. Matt does not own