Comment: The pinnacle of centralization, Binance, reminds us of Bitmain and Alibaba

Wu said author | Colin Wu

Editor of this issue | Colin Wu

Binance's challenge to Ethereum and the fear of the crypto community caused by its dominance remind people of Bitmain in 2017. But the challenges Binance actually faces remind people of Alibaba today.

Not long ago, BNB surpassed USDT to become the third largest cryptocurrency by market value. Not long after, its market value was nearly twice that of USDT. Binance's profit in 2020 was nearly three times that of Coinbase (US$320 million), and Coinbase's profit in the first quarter of this year was US$800 million. With a new round of BNB destruction imminent, Binance's profit in the first quarter may be beyond imagination.

In the latest data disclosed by Binance on the 12th, the number of users in Q1 increased by 346% compared with the fourth quarter of 2020, and the transaction volume increased by 260%. Binance already has a large number of users, and the 3.4-fold increase is even more amazing. Of course, it is not ruled out that many users have multiple accounts. The transaction volume of Binance Smart Chain has recently reached 3 times that of Ethereum. Although there is suspicion of fake orders, Binance has become the undisputed absolute overlord in the centralized army in the field of cryptocurrency.

Binance's influence and deterrence on the crypto industry will remind people of Bitmain in 2017-18. Bitmain's net profit in 2017 was about 1 billion US dollars, which is close to Binance in 2020. Bitmain led the fork of BTC, and Binance led BSC to challenge Ethereum, which frightened the decentralized community. From this perspective, there are also very strange similarities.

Despite this, Bitmain and Binance are completely different. The core of Bitmain is the hardware Bitcoin mining machine, as well as the mining pools and mining farms around the mining machine. Apart from this, there are no competitive products and the business line is relatively single. Binance is a "platform-type" exchange. After gaining traffic, it continues to expand its boundaries and can quickly rank among the top in other fields such as mining pools.

More importantly, Binance maximized the wealth-creating effect of the bull market. It should be emphasized that it is not Binance that makes users rich, but Binance gathers as many users as possible and cooperates with the most products to allow users to enjoy the benefit effect brought by the bull market on the platform. The soaring BNB and many projects invested by Binance and BSC mining projects have made institutions, large investors and retail investors feel the real bull market on Binance. Therefore, in addition to a few fundamentalists in the crypto community, many new industry leaders are also supporting Binance and BSC. In those days, Bitmain made more money on its own and did not share the dividends, so it was criticized one-sidedly.

But what is the most feared thing about the platform economy?

We have seen Alibaba today and Tencent, which is "trembling" (this is something that technical hardware companies like Bitmain do not have to worry about). Binance's real competitor is by no means Ethereum, but various compliant exchanges represented by Coinbase, and the collusion between these compliant exchanges and local governments.

As a non-compliant exchange, Binance is more attractive to users in the countries of these compliant exchanges, and the only way to restrict domestic users from using Binance is regulation. We have seen that Coinbase has targeted Binance in the S1 document, "crying" that competitors have strong competitive advantages in derivatives (various contract options) and security tokens (various listings) because they do not need to comply. Binance is also the only exchange directly named in Coinbase S1.

Compliance is the trend of the future, but in the field of cryptocurrency, compliance will become a huge constraint. For example, Japan is actually the first region to comply with cryptocurrency regulations, but the result is that the domestic ecosystem has been half-dead. Launching a token or increasing a leverage ratio requires approval from the Financial Services Agency. This is almost a funny behavior in the cryptocurrency industry. When a token passes a long approval process, it may have returned to zero.

Japan is in a very extreme situation. The US crypto regulation and compliance approach represented by Coinbase, DCG, etc. will become a model that various countries and regions will follow in the future. Currently, Hong Kong and South Korea are promoting it. Meitu did not choose Coinbase for its latest purchase of $10 million worth of Bitcoin, but OSL, the first licensed exchange in Hong Kong. In other words, if Europe, South Korea, Hong Kong, Singapore, etc., all strictly ban non-compliant exchanges from providing services to domestic users like the United States, then Binance will be greatly affected. And these local compliant exchanges will definitely do their best to promote this to happen.

Can Binance transform into a compliant exchange similar to Coinbase? The possibility is almost zero. In addition to historical issues, the larger the market value of BNB as a security, the smaller the possibility of compliance. Binance is bound to face the "encirclement and suppression" of compliant exchanges and governments in the foreseeable future. Historical trends often rise and fall. The listing of Coinbase and BNB resonated at the highest point. It seemed that the whole family was happy, but it might be a bloody fight between compliant players and non-compliant players afterwards.