The BNB token rallied 300% to a high of $348 from around $120 last week. Even before the huge rally last week, BNB has been on an up move, rising steadily from the $30 region in January this year to $120 where it paused a week before staging the 300% rally, shocking many market watchers. 

However, this rally will not come as a surprise to followers of Binance. In fact, if one has been following the development of the BNB ecosystem, this is rally has been anticipated. Personally, I feel there is a lot more room for BNB to grow, both in price and market capitalisation, since it is still in the early stages of building up its ecosystem, being only 5 months old. 

How did all this come about?

DeFi has been the biggest contributor towards ETH price appreciation over the past year. However, with the popularity and rise in ETH price, high network fee has started to affect the profitability of yield-farmers on DeFi platforms. At the same time, the high fee makes trading on ETH-based Decentralised Exchanges (DEX) very expensive, with even small transactions sometimes costing up to $300 in fee per transaction. This makes ETH-based projects highly expensive to use unless one is trading in large sizes since the fee is not dependent on the size of transaction, but on the number of incidents/transactions. Most yield-farmers are finding it very hard to be profitable on ETH-based DeFi platforms. The market needs a cheaper alternative in order for DeFi projects be accessible for the mass market and drive adoption.

Enters the Binance Smart Chain (BSC)

For the most part of 2020, seeing the high fees on ETH network, Binance started working on its own smart contract blockchain that can compete with ETH and thus, the Binance Smart Chain (BSC) was launched without much fanfare in September 2020 as most traders still focused on ETH and ETH-based projects. 

The native token running the BSC is the BNB exchange token, which makes BNB the one token with the highest utility in the market as it can both power a blockchain as well as serve as a utility token offering holders trading discount on the Binance Exchange. 

In early February 2021, the success of Venus Protocol, the first DeFi project built on BSC, made the market sit up and realise that BSC is a legitimate contender in the smart contracts segment that can compete neck in neck with ETH. In fact, BSC may be better as users of Venus Protocol have reported that it is a lot cheaper to use, and is faster than the ETH blockchain. 

The cheap fees and fast transaction speed of the BSC also led to the rise of Pancakeswap, the BSC version of Uniswap, which is a DEX that runs on the BSC. Pancakeswap has overtaken Uniswap to become the DEX with the highest daily traded volume, clocking $1.6 billion against Uniswap’s $1.2 billion daily volume. 

As for Venus Protocol, Total Valued Locked (TVL) has grown to above $3.5 billion after being in operation for only 3 months, surpassing that of Sushiswap. 

Transactional volume on BSC has gone up 300% this year and has doubled that of ETH due to the popularity of Venus and Pancakeswap, plus some other over 100 smaller projects built on BSC. On Feb. 18, BSC recorded 2.5 million transactions on its network, compared with only 1.3 million transactions on the ETH network. Hence, I am of the opinion that the price increase in its native token, BNB, is justified.

BSC offers a faster speed and way lower cost than ETH, making it profitable for most yield-farmers to farm on BSC-based projects. Swap fee on a BSC-based DEX is also a lot lower than that of an ETH-based DEX, improving the profitability of a trader; BSC has succeeded in maintaining average gas fees as low as $0.04, compared with ETH’s $5.53. 

One other reason for the fast adoption of BSC is that it is 100% compatible with the ETH blockchain, which allows ETH-based projects to deploy their applications on BSC with no additional change. This makes it very easy for projects from ETH to move to BSC. Already, some projects like Value DeFi and yield aggregator, Harvest Finance, have switched to BSC from ETH. 

Should the problem of high fees continue to plague the ETH network, we might see more projects leave ETH to switch to BSC or some other blockchains, making ETH give up some of its market share to the newer blockchains, thereby depleting its leadership status which took 5 years to build. Even though ETH 2.0 has plans to improve the fee structure and lower the gas fees eventually, that upgrade has not yet been initiated and may take a while to, opening up the opportunity for other blockchains to take away its current projects, and compete against it for new projects.

The market capitalisation of ETH is around $220 billion, 5 times that of BNB which is around $46 billion. With BSC picking up traction this fast, I personally feel there is a lot more room for the BNB token to grow compared to that of ETH of the ETH blockchain, which has somewhat reached saturation point unless its problems of high fee and network congestion are resolved.  Until then, BSC seems to have the upper hand and continue to erode ETH’s market share and grow faster than ETH. 

About Kim Chua, PrimeXBT Market Analyst:

Kim Chua is an institutional trading specialist with a track record of success that extends across leading banks including Deutsche Bank, China Merchants Bank, and more. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge down to a new generation of analysts. Kim Chua actively follows both traditional and cryptocurrency markets closely and is eager to find future investment and trading opportunities as the two vastly different asset classes begin to converge.