If this growth pace continues, the TVL locked in applications on BSC could surpass Ethereum’s in a matter of months.<\/p>\n
We analysed why the buzz around the new DeFi ecosystem has emerged, its pros and cons, and, most importantly, whether BSC has prospects after Ethereum’s scaling.<\/p>\n
- \n
- In the face of Ethereum’s scalability problems, the BSC-based ecosystem quickly gained popularity thanks to inexpensive transactions.<\/li>\n
- The main drawback of Binance Smart Chain is its high degree of centralisation.<\/li>\n
- Some experts believe that BSC will not be able to surpass Ethereum in the long run.<\/li>\n<\/ul>\n<\/div>\n
A brief introduction: key features of Binance Smart Chain<\/h2>\n
In April 2018, the popular crypto exchange Binance launched the Binance Chain mainnet. The aim was to create a high-speed blockchain with significant throughput.<\/p>\n
To implement the plan, the developers chose the m\u043e\u0434\u0435\u043b\u044c \u043a\u043e\u043d\u0441\u0435\u043d\u0441\u0443\u0441\u0430 Tendermint BFT<\/a>. The result is a system tailored primarily for the network’s main application \u2014 the Binance DEX trading platform.<\/p>\n
In early 2020, the Ethereum-based DeFi sector began to grow rapidly. In the run-up to a new boom, Binance realised what Binance Chain lacked \u2014 smart-contract support and the ability to launch its own applications by various projects.<\/p>\n
Developers did not attempt to add smart-contract capabilities to Binance Chain at the expense of its performance. They cut the Gordian knot by launching a parallel network \u2014 Binance Smart Chain.<\/p>\n
Launched in September 2020<\/a> the BSC platform became fully programmable and ready to work with smart contracts thanks to compatibility with the Ethereum Virtual Machine [Ethereum Virtual Machine, EVM]. This approach gave developers an easy path to port projects originally launched on Ethereum.<\/p>\n
Interacting with BSC applications will be straightforward for users familiar with the \u201cclassic\u201d DeFi world and the MetaMask wallet. The latter can easily be configured to work with Binance Smart Chain<\/a>.<\/p>\n
In the BSC system a hybrid Proof of Staked Authority (PoSA) model is used, derived from the cross of the Delegated Proof of Stake<\/a> and Proof of Authority algorithms.<\/p>\n
A short block interval makes transaction processing fast \u2014 around 3 seconds. The higher gas limit compared to Ethereum positively affects throughput, allowing more transactions to be included in blocks.<\/p>\n
As of writing, Ethereum’s block gas limit sits at 12,5 \u043c\u043b\u043d<\/a>, while Binance Smart Chain’s is 30 \u043c\u043b\u043d<\/a>. With an average block size<\/a> of 40,000 bytes, the growth of the new chain is roughly ten times faster than Ethereum \u2014 about 1,15 GB per day or 420 GB per year. This means that after a few years a would-be validator on the Binance Smart Chain would need an entire data centre.<\/p>\n
Moreover, a candidate for validator on Binance must possess at least 10 000 BNB ($2,55 mln at the rate on 15.03.2021). Among candidates meeting this criterion, those with more coins (own and delegated) are chosen. The result is a kind of [simple_tooltip content=\u2019Type of market structure of imperfect competition, dominated by a very small number of economic agents.\u2019]oligopoly[\/simple_tooltip] of 21 validators<\/a>. The participant list is reviewed once a day.<\/p>\n
To pay transaction fees in the new network, Binance Coin (BNB) is used. Thanks to BSC the latter has moved well beyond being a mere exchange token for discounts on trading fees and access to primary coin offerings<\/a>. BNB has become a central element in yield farming<\/a>.<\/p>\n
A hype around the new ecosystem<\/h2>\n
In the second half of February, the TVL of the Binance Smart Chain ecosystem surpassed $10 billion.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/Defistation-1-1.png\")
TVL and the top three leaders of the Binance Smart Chain ecosystem. Data: Defistation<\/a> as of 15.03.2021.<\/figcaption><\/figure>\n<\/div>\n Leading projects on the BSC base:<\/p>\n
- \n
- the lending protocol Venus \u2014 the Ethereum-based Compound analogue;<\/li>\n
- PancakeSwap \u2014 a DEX similar to Uniswap;<\/li>\n
- Autofarm \u2014 a project akin to Yearn Finance.<\/li>\n<\/ul>\n
TVL of the above protocols totals $5,34 \u043c\u043b\u0440\u0434, $3,88 \u043c\u043b\u0440\u0434 and $1,15 \u043c\u043b\u0440\u0434 respectively. For comparison, the TVLs of Maker, Compound and Aave on Ethereum stand at $6,95 \u043c\u043b\u0440\u0434, $6,41 \u043c\u043b\u0440\u0434 and $5,01 \u043c\u043b\u0440\u0434 (as of 15.03.2021).<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/DeFiPulse-2.png\")
Total TVL of the Ethereum-based ecosystem stands at $42 billion. Data: DeFi Pulse as of 15.03.2021.<\/figcaption><\/figure>\n<\/div>\n In terms of on-chain activity, daily BSC transactions exceed Ethereum’s by more than a factor of two.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/Dnevnoe-chislo-tranzaktsij-v-ekosisteme-Binance-Smart-Chain.-Dannye-BscScan.-3.png\")
Daily transaction count in the Binance Smart Chain ecosystem. Data: BscScan<\/a>.<\/figcaption><\/figure>\n<\/div>\n On 11 March the network processed 2,930,895 transactions. Ethereum registered 1,284,767.<\/p>\n
Significant activity is also indicated by the rapid growth in unique addresses.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/CHislo-unikalnyh-adresov-v-ekosisteme-Binance-Smart-Chain.-Dannye-BscScan.-2.png\")
Number of unique addresses in the Binance Smart Chain ecosystem. Data: BscScan<\/a>, ForkLog February report.<\/figcaption><\/figure>\n<\/div>\n BSC remains popular despite its relatively centralised nature. Retail investors are clearly drawn by the high transaction speed and low network fees.<\/p>\n
Below is a chart of the average gas price paid by Binance Smart Chain users for transactions.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/Binance-Smart-Chain-Average-Gas-Price-Chart.png\")
Average gas price dynamics in the Binance Smart Chain network. 1 gwei on BSC equals 0.000000001 BNB. Data: BscScan<\/a>.<\/figcaption><\/figure>\n<\/div>\n With BNB priced around $250 and gas costs at 13 gwei, a simple token transfer costs about $0.10. Interacting with a smart contract, usually involving several transactions, can exceed $1.<\/p>\n
Ethereum fees are significantly higher \u2014 a simple ETH transfer can cost users $30 or more.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/ETH-avg-fee.png\")
Trend in the average transaction fee for Ethereum. Data: Blockchair<\/a>.<\/figcaption><\/figure>\n<\/div>\n Interacting with Ethereum smart contracts can entail even higher costs. In periods of high on-chain activity and elevated ETH price, token swaps on Uniswap or deposits to Compound can reach $100 or more.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/ETH-Dune.png\")
Gas price dynamics for typical Ethereum operations. Data: Dune Analytics<\/a> as of 15.03.2021.<\/figcaption><\/figure>\n<\/div>\n Attractive transaction fees and high speed have become the main reasons behind the popularity of BSC-based applications for many retail users.<\/p>\n
Demand drives supply: the new DeFi ecosystem expands with projects and infrastructure. This happens not without generous support from Binance<\/a>.<\/p>\n
\n![\"K\u0435\u0439\u0441](\"https:\/\/u1f987.com\/wp-content\/uploads\/Overview-of-BSC-Ecosystem-scaled.jpg\")
Data: BscProject<\/a>.<\/figcaption><\/figure>\n<\/div>\n As of mid-March 2021, the range of BSC apps is not as rich as Ethereum’s. Yet new projects keep appearing. On the other hand, there has been a rise in hacker attacks<\/a> and exit scams<\/a>.<\/p>\n
CeDeFi and the associated risks<\/h2>\n
Late last year Binance chief Changpeng Zhao proposed<\/a> the term CeDeFi, signifying something between centralised and decentralised finance.<\/p>\n
BSC is a typical CeDeFi example. In Zhao’s view, Binance Smart Chain is more of a complement than a competitor to the \u201cclassic\u201d DeFi, intended to promote broad uptake of crypto assets and dapps.<\/p>\n
Among CeDeFi’s advantages are low fees. Along with high speed, they motivate users to try various protocols \u2014 decentralised exchanges, lending apps, yield-farming tools and liquidity-aggregators.<\/p>\n
Thanks to CeDeFi, some newcomers are encountering MetaMask and blockchain explorers for the first time, diving into the diversity of the crypto industry.<\/p>\n
Low gas costs allow projects to reduce costs when deploying smart contracts and testing the ecosystem in real-world conditions. The architecture simplifies developers’ interactions with the new ecosystem. Some well-known projects have already opened bridges<\/a> between Ethereum and BSC, allowing switching between networks.<\/p>\n
Similar to Ethereum with its popular ERC-20 standard, Binance Smart Chain users can create BEP-20 tokens. The Binance Chain has its own standard \u2014 BEP2.<\/p>\n
One of CeDeFi’s main drawbacks is high centralisation. A system controlled by Binance and supported by 21 validators is hardly decentralised. That is the flip side of low fees and fast transactions.<\/p>\n
Notably, validators face a high entry barrier. As noted, they require Binance’s approval, a substantial BNB stake and significant disk space.<\/p>\n
Binance invests substantial resources<\/a> in developing the ecosystem, the success and popularity of which influence BNB’s price. The native asset of the BSC is used to pay transaction fees and is widely employed in apps offering high yields.<\/p>\n
On the other hand, there is little emphasis on serious innovations as in Ethereum. The value proposition of the Binance-based ecosystem essentially amounts to a cheap alternative for yield farming.<\/p>\n
The BSC infrastructure also lags behind Ethereum’s DeFi ecosystem development. Yet with the proliferation of new analytical services and wallets, the situation is improving over time.<\/p>\n
Expert views on BSC<\/h2>\n
The head of Alameda Research and crypto derivatives exchange FTX Sam Bankman-Fried<\/strong> offered his views on the Binance Smart Chain ecosystem and its prospects in a series of tweets.<\/p>\n
\n
7) But BSC made a number of choices that seem pretty intentional to me.<\/p>\n
They didn\u2019t build a totally new chain; they basically forked ETH.<\/p>\n
They didn\u2019t collect tons of independent validators.<\/p>\n
They didn\u2019t build a new wallet: they made BSC work on Metamask.<\/p>\n
\u2014 SBF (@SBF_Alameda) March 8, 2021<\/a><\/p>\n<\/blockquote>\n