Is the wallet business really suitable for all exchanges?

What might be the motivations behind the mature wallet solutions on the market?

How will on-chain business + chain abstraction drive $BNB  on-chain demand?

This article will revolve around the above three questions. I think the content is very interesting and I recommend reading it.

The full text is quite long, you can first look at the forward-looking summary in the figure below

-The motivation for exchanges to build wallets🔻

 

In this cycle, the first climax of such a trend in the market should be last year's inscription market, and this year's Meme fever has taken over the market's demand for a good wallet product.

  • Here are exchanges that do well in wallet services.

However, when we consider the motivation for exchanges to create wallet services, aside from gaining on-chain users on the app side, from both business and strategic perspectives, if the wallet provides project services, it follows a big entity's business logic.

- From a strategic perspective, it seems possible to gradually outline a large motivation—product spin-off for listing.

(1) Currently, the macro policy environment globally, whether in the United States or Hong Kong, has become the biggest foundation supporting this speculation;

(2) Moreover, due to historical reasons, especially exchanges with past issues, financial problems are difficult to explain, making it a challenge to smoothly enter the IPO process even in a crypto-friendly policy environment.

Therefore, if an exchange can: invest greater resources through its existing traffic to refine a wallet product to attract enough users, making this wallet a product of a significant entity with users and clients.

Next, a mature product with sufficient regulatory conditions, a clean business logic, and no historical issues has a complete motive to be split for listing in Hong Kong and the US (the possibility of listing in Hong Kong is very high).

In a previous tweet (the strategic significance of Binance Plaza), I once said:

"Currently, there are very few exchanges that need and can do similar businesses like the plaza; for second and third-tier exchanges, controlling the listing well will naturally attract the market's secondary liquidity. The vast majority of exchanges haven't even reached the stage of maintaining incremental growth (although both can be carried out simultaneously)."

Similarly, from a strategic perspective, I feel that many exchanges doing wallet services have collectively lost their way, neither considering ROI nor thinking about the starting points of mature competitors in the market doing this.

Perhaps this matter is only suitable for it to do at this stage and not suitable for others, let alone Binance (I can hardly imagine a day when Binance suddenly says: I plan to go public...)

- The on-chain business of exchanges 🔻

Returning to the product itself, we were able to glimpse some things from yesterday's product preview.

Since it is said to be a brand new version, I might as well not use the existing product framework to understand it.

However, the recent explosion of DEXX prompted me to reflect on exchanges doing on-chain business.

You say that DEXX exploded; isn't the core reason that the words [non-custodial] can solve it?

I previously said otherwise; apart from that, there was such an idea even before DEXX: why don't existing DEXs reference CEX styles to create one.

When I was serving a DEX protocol, I asked their team this question, and they gave me an answer: A product with simple logic is a good product, and the UI currently used by DEX is generally so.

I have some doubts.

Personally, I believe that the vast majority of people come into contact with Web3 through centralized exchanges, and the current UI of exchanges is relatively easy to understand. By using such an interface and providing good user guidance, we can minimize the understanding barrier for users.

To be fair, although DEXX is doing centralized business, it serves on-chain users, and its explosion made me feel very regretful.

In fact, DEXX's model can be completely adopted for Binance to develop wallet services.

🔻 There are several points

(1) Users have trust in the Binance brand itself, which lowers their defensive mentality about security;

(2) If Binance's main focus on-chain is to do this rather than the wallet logic, the cash flow generated is completely incomparable to a wallet business; otherwise, why was DEXX previously promoted as an on-chain Binance by 'civilian' marketing?

(3) It can expand the existing rebate system of Binance, whether it is to expand a new rebate system or empower the existing rebate system, both are achievable;

(4) Further avoid user outflow; if the wallet service is not done well enough, user outflow is inevitable. However, creating an on-chain CEX, due to the lack of licensing for trading listings, will not be restricted by issues such as industry influence endorsement, and what is gained is a more easily understandable on-chain product for users + a broader on-chain market.

Creating a CEX for on-chain business still has a very large market space, and for exchanges with a wide moat, it has a significant advantage.

As I said above: Some businesses may not be suitable for you, even if you are at the top.

In terms of product attributes, I can certainly distinguish between a wallet and a DEX/CEX, but from the relationship between business and ROI, I find it hard to see strong motivation for an exchange to create a wallet.

Returning to the business side, running a model similar to DEXX explains the relationship between business and ROI completely.

Even if this feature is placed at the wallet's port, it must be in a very prominent position.

- How chain abstraction can improve the existing wallet scheme 🔻

In fact, when listing new Binance products yesterday, I mainly highlighted several characteristics, and I will list them for everyone and provide an analysis.

(1) Non-mnemonic self-custody: I believe this is a relatively new product paradigm. Without details, I speculate that some special wallet recovery codes have been isolated, and you control this recovery code to achieve a different self-custody paradigm;

However, the matter of self-custody is not positively correlated with security; as mentioned earlier: the original sin of the DEXX explosion was not due to custody;

However, the new wallet's claim to be user-friendly for beginners is very promising.

(2) Unified wallet balance display: This is a starting point for the feedback I want to provide, and it is also the fundamental starting point of my discussion on combining with the chain abstraction scheme;

I love to speak the truth: The market-changing nature of unifying the balance is not significant.

If you can achieve unified GAS and unified liquidity, that would truly be a revolutionary and genuinely beginner-friendly thing.

Coincidentally, the chain abstraction scheme can achieve this, and behind the unified GAS lies the significant initiative of empowering $BNB.

Let me explain it to you one by one.

🔻 First, let's mention a background: Binance Labs once had two movements related to the chain abstraction track that impressed me.

(1) Chain abstraction protocol Cycle Network @cyclenetwork_GO was selected for the seventh incubator program.

(2) Announce investment in chain abstraction protocol Particle Network @ParticleNtwrk

I am actually quite familiar with what Particl is doing, so I will extend some of its existing solutions and see what kind of products can be innovated by combining it with the Binance wallet and what benefits it may bring.

(1) Unified liquidity: Have you ever used the [instant exchange] function within the exchange? I often do. If I need to buy a new coin, it doesn't require me to sell a coin for U and then buy it; I can directly use my existing holdings to purchase;

Unified liquidity has a similar logic; on this basis, I can seamlessly exchange assets from any chain.

Isn't this unfriendly to new users?

(2) Unified/Universal GAS: This is key for wallets empowering $BNB. Currently, I am aware of two types of chain abstraction schemes in the market;

Unified GAS of XION and universal GAS of Particle;

➢ The introduction of unified GAS into the usage scenarios of the Binance wallet means that the wallet uniformly uses $BNB or stablecoins issued based on $BNB for unified payments;

➢ Universal GAS is more flexible, almost unrestricted in the types of assets used, completely driven by solvers to coordinate liquidity across chains; this is actually a more flexible [on-chain instant exchange] function, where the most critical step is that all [universal GAS] will be automatically exchanged for BNB in the backend.

In principle, it is somewhat like combining all chain assets with $BNB into a pool for binding and exchange, and the use of this scheme can drive the market's on-chain demand for BNB.

In a certain sense, if this matter is combined with the second point to create an [on-chain trading CEX] business, then the on-chain empowerment of BNB would be unparalleled by any past ecosystem or mechanism.

However, it can be anticipated that accomplishing such a task is not small; even if this work may only require communication about the usage of existing aspects.

🔻 Finally, a summary

1️⃣ Motivation for exchanges to create wallets

➢ There is a high demand in the market for excellent wallet products, and wallet services may be the breakthrough point for exchange traffic conversion;

➢ But from a strategic standpoint, mature competitors in the market might be aiming to achieve listing through future product spin-offs, especially in the context of the Hong Kong and US stock markets, this path is more feasible.

2️⃣ Potential of on-chain business

➢ In the wake of the DEXX explosion, the business logic of CEX providing on-chain trading services is more ROI-driven than wallet services;

➢ Based on Binance's brand trust, rebate system, and user stickiness, the market space for on-chain CEX is huge and easier for users to understand and accept.

3️⃣ Chain abstraction improves the existing wallet scheme

➢ The originally displayed [unified balance display] has limited revolutionary nature, but if unified GAS and liquidity can be achieved, the wallet of the exchange itself and related on-chain services will be able to drive on-chain demand for BNB, thereby further empowering the token.

In summary: Wallet ≠ Core competitiveness of exchanges; on-chain CEX + chain abstraction may be a better solution.