$BNB which serves as the acronym and the native token for Build N Build chain, was a crypto token launched by the CeFi crypto exchange Binance in 2017. BNB chain promised its users low transaction fees with high transaction speed and this separate blockchain venture pursued by Binance was welcomed by a growing DeFi community as an alternative trading solution that would catapult Binance and its brand across both CeFi and DeFi domains to become the largest crypto company in the world. As of March 2023, Binance enjoyed an unrivalled USD 14 billion daily trading volume to earn its top spot as the largest crypto exchange while its DeFi token captured over USD 46 billion market capitalization and has secured itself a top 4 rank in market cap among all tokens traded. In essence, the BNB chain’s ecosystem consists of BNB Smart Chain, which serves as the transaction layer with its unique Proof of Staked Authority validation mechanism to ensure security against 51% attack without compromising transactional efficiency, BNB Beacon Chain which serves as the governance layer of the blockchain ecosystem through staked voting, BNB Side-chain and BNB Greenfield which emulate Ethereum’s continuous infrastructural improvement and zkBNB which applies Zero Knowledge Roll-up on the BNB Smart Chain to tackle its scalability issue by developing BNB’s own layer 2 solution.

Furthermore BNB also operates a USD-pegged stable-coin, BUSD, with Paxos and it has been regulated by the New York State Department of Financial Services with periodic audits by Withum. Nevertheless, the US SEC’s sudden decision to classify BUSD as an unregistered security in February 2023 has triggered a massive outflow from BUSD to rival stable-coin Tether and culminated into BUSD’s market cap falling below USD 9 billion by early March 2023 after being de-listed by crypto exchange Coinbase. In addition, BNB’s token price has also suffered a similar fate as BNB has lost about 12% of its value since February 2023. Scrutiny and worries among the crypto community started to connect to BNB chain as reports emerged that Binance under-collateralized its stable-coin asset reserve and co-commingled client’s fund by investing client’s asset with hedge fund such as Cumberland DRW and Alameda Research in the past. As no official charges have been brought against Binance to date over the alleged misuse of client’s funds and Paxos also vowed to fight against the US SEC’s decision in court, is there any chance that Binance or Paxos could overturn the recent misfortune and BNB token would recover its value as well as the crypto community’s confidence? In the rest of this article we shall look at the reasons why one should be bullish or bearish over BNB.

Bull Cases

1. Ecosystem Development: The BNB chain has devoted an astounding amount of resources towards nurturing its ecosystem development. Firstly, it has an accelerator programme called Most Valuable Builder running in conjunction with Binance Lab to cultivate new and promising projects. Currently the programme is at its 6(th) cohort group and notable alumni from previous cohort include Velvet Capital, Rareboard, Meta Apes, etc… spanning across DeFi, NFT and GameFi projects on the BNB chain. Secondly, BNB chain offers a Builder Grant to incentivise developers to contribute to its ecosystem growth. For instance, open-source high-frequency market making platform Hummingbot has recently been a recipient of the grant and the Grant would help to entice developers to extend their product reach into BNB chain. Thirdly, BNB chain has recently created a European Innovation Incubator Programme running virtually in the European time zone as the blockchain targets for a wider adoption in the EU in addition to its success in Asia and Americas. Last but not least, BNB chain has promised USD 10 million fund to foster faster user growth and network adoption through promoting its ecosystem development and hence over time the funding and projects are expected to help drive for a wider adoption of the BNB token and it might thus contribute to the appreciation of BNB token in the long run.

2. DeFi Resilience: According to data from DefiLlama, despite an overall decline in Total Value Locked (TVL) across the crypto industry, BNB chain has only lost about 20% of its TVL since FTX’s collapse and it still managed to retain about USD 4.78 billion TVL in testimony to its steadfast DeFi community’s activity. As far as DeFi network diversity, the top 3 TVL platforms are composed of PancakeSwap which dominates BNB chain’s DeFi TVL with over 51% (USD 2.47 billion) followed by Venus Protocol with about 16% (USD 763 million) and Alpaca Finance with about 8% (USD 379 million). Overall, although BNB’s DeFi sector lacks sufficient diversity, its stable DeFi user volume speaks for the resilience of the sector and it resembles a well-established DeFi ecosystem such as Ethereum’s.

3. Revenue Resistance: BNB chain’s revenue share has been barely affected since FTX’s implostion in November 2022. By far, the greatest decline in the blockchain’s revenue was when Terra and Luna collapsed in May 2022 when BNB chain’s revenue fell from USD 3.8 million to USD 2.4 million which constituted to a 36% revenue loss. Since November 2022 however, its revenue has merely dropped from USD 2.3 million to USD 1.9 million in February 2023 which constitutes to 17% revenue loss or a grand total of 50% revenue loss from May 2022 to February 2023. When compared to rival blockchain networks such as Fantom or Avalanche, their revenue shares in February 2023 were USD 78,000 and USD 558,000 which represented a decline of 91% and 95% since May 2022 when both networks reported USD 878,000 and USD 10.7 million of revenue respectively. Although BNB chain’s revenue is declining, the fact that it could still maintain a healthy share of revenue generation activity compared to its rivals and the decline in its revenue has showed sign of tapering suggested that the remaining share of its revenue could be generated from loyal users and the blockchain network can maintain a decent revenue share to sustain itself from going forward.

4. NFT and GameFi Trends: BNB chain has recently shown remarkable effort in boosting its NFT and GameFi development. For instance, it has secured a partnership with Openseas to expand BNB chain on the most popular NFT marketplace. In addition, BNB chain also ran a promotional campaign during late 2022 to further boost this NFT partnership with Openseas through a 12-day campaign which has helped to catapult the blockchain into top 6 in NFT sales volume of USD 8.8 million trailing behind Ethereum, Solana, Polygon, Immutable X and Cardano by February 2023. On the other hand, BNB chain has also ramped up its development of GameFi ecosystem with numerous grants provided to GameFi projects such as Gameta, Meta Apes, Puffverse, etc… Furthermore, Alien Worlds, which has the highest amount of Unique Active Wallets with over 200,000 users according to data from Dappradar, is a GameFi project built on BNB chain and thus, NFT and GameFi can sustain BNB Smart Chain’s transactional volume and offer a price floor to the BNB token.

Bear Cases

5. Risk from Binance and BUSD: Unfortunately for BNB chain, its connection to Binance and BUSD stable-coin creates a reputational risk factor. Due to the increased scrutiny from the US SEC on Binance and on BUSD, any reputational risk related to the exchange or the stable-coin could trigger a panic sell-off on BNB token thus BNB investors or holders must be wary of a potential spillover effect and manage the risk accordingly. For instance, the recent US SEC’s decision to classify BUSD as an unregistered security has triggered a sharp selloff of BNB in February 2023 causing BNB to lose over 9% of its market value. In addition, if Binance’s alleged misuse of customer funds was proven to be true, any legal complication might ripple off to BNB chain and hefty liquidation of BNB token might happen overnight and investors must factor that in for their BNB investment. Therefore, multiple risk factors are on the horizon and it is yet unclear how likely Binance and BNB chain would prevail over time.

6. Capital Outflow: Since 2023, Binance, BUSD and even BNB chain have experienced a continuous trend of capital outflow. For instance, in early 2023 CeFi exchange Binance has reported huge capital outflow equivalent to 25% of its asset value. Then BUSD has lost over USD 6 billion of capital as investors switched to safer asset due to worry about BUSD’s long term sustainability in light of the US SEC’s decision. Furthermore, even BNB chain has witnessed over USD 4 billion of capital outflow in 1 month as the blockchain’s market cap plunged from circa. USD 49 billion in February 2023 to circa. USD 45 billion in March 2023. Overall these worrying trends represent that investor confidence is fading fast regarding anything related to Binance and it is not likely to see the trend reversed within a short period of time.

7. Developers Activity: Last but not least, developers activity has slowed down by 28% in the last quarter of 2022 as reported by Messari. Corresponding to the fact that the crypto industry is shrinking due to the current harsher business environment, it raises a big question as to whether now is a good time to invest in BNB as slowness in developer activity might spell long term growth trouble for the blockchain. However, BNB chain has certainly stepped up its effort in promoting developer activity through its arrays of grants and hopefully they would succeed in enticing developers towards building on BNB chain.

Conclusion

Overall, BNB chain represents an interesting yet stressed investment opportunity for any investors who can tolerate the short to medium-term risk of an uphill legal battle that Binance and BUSD might face in the months ahead and the increased scrutiny that might result in damaging Binance and any related entity’s reputation if further evidence is found over its misuse of customer funds. However, risk also brings return as BNB token has depreciated over 58% from its all-time-high price due to the worsening crypto market condition and capital outflow from investors who have lost confidence. Meanwhile a very resilient BNB chain user base has shown such staunch support that can generate a little less than USD 2 millions of monthly revenue and thus investors interested in BNB should ask themselves when will be the best time to “buy the dip”.