1) Binance Smart Chain (BSC) provides lower transaction fees and higher throughput than Ethereum, allowing applications like PancakeSwap to attract retail traders. 2) While BSC is not as decentralized as Ethereum, it provides a good enough platform for activities like yield farming and trading that value low costs over absolute decentralization. 3) For applications and developers, BSC acts as a useful API or interface to access the large Binance userbase without needing to build on Binance's platform directly. However, other layer 1 and 2 solutions will need to emphasize benefits like decentralization and immutability to compete.

1. Exchange-related chains
BSC (and a little Serum)

2. Disclaimer
These slides are for educational purposes only. The views do not necessarily
represent those of my employer. I am not a lawyer.
Note: There is some speculation involved regarding motivation behind issuing
exchange tokens.

3. Q: What do some early exchange tokens have
in common with the Howard Hughes Medical
Center?

6. A: At first and second glance, second generation*
exchange tokens were likely ERC20-based cash grabs.
Yet a few of their creators have turned the capital into
some actual utility.
(Obviously the ends justify the memes!)

7. Timeline
BNB was launched via an ICO that took place from June 26th to July 3rd, 2017 -
11 days before the Binance Exchange opened for trading.
○ The issuing price was 1 ETH for 2,700 BNB or 1 BTC for 20,000 BNB.
○ BNB had no functionality as it was simply an ERC20 on Ethereum.
● At the time it was common for Asia-based exchanges to launch their own
token as a means to fundraise and capitalize on the ICO hype.
○ Transaction fees could be paid in BNB
○ Rewards for loyalty could be paid out in BNB
○ BNB holders could “vote” on actions that Binance followed through on (e.g., listing a new coin)
○ Binance regularly burned BNB - kind of like a stock buy-back - which BNB holders liked
● To some U.S. lawyers, the governance (voting) and manual burning of BNB
were hallmarks of “securities”

9. Cont’d
● How to assuage concerns around a token being a security? Hinman’fy it via
“decentralization”!
● April 23, 2019 - Binance Chain is switched on for public usage
○ The initial total supply for BNB tokens was 200 million, 48 million of which were frozen and 11,654,398
of which were burned.
● What can BNB now be used for? Binance DEX: a “decentralized” order-matching
engine from Binance
○ Within one year, about 110 tokens were listed on Binance DEX… (was it really decentralized?)
○ BEP2 tokens introduced to allow easy collateralization (e.g., tokens backed by other coins such as
Bitcoin or BNB)
○ Atomic swap “integration” so coins from other chains can swap back and forth onto Binance Chain

10. Cont’d
April 27, 2020: Binance Smart Chain (BSC) was publicly announced
● Forked Geth, kept EVM compatibility and removed PoW
● 21 validators using Proof of Staked Authority (PoSA). Tweaked Tendermint,
reducing block times from 5 seconds to 3 seconds.
○ Note: an engineer at Cosmos thinks that Tendermint block times could be turned down a tad…
“2 seconds is practical-ish”
● In practice, BSC can process about 300 transactions per second.
● Sacrificed a bit of “decentralization” to achieve relatively low cost of usage
(e.g. currently an on-chain txn for BSC is just a few cents)
○ For comparison, xDai Chain (which is basically POA), uses 5 second blocks.
■ Note: 16 validator pools and 211 delegators currently used in xDai chain
● And the underlying token native to BSC is… BNB
■ HHMC 2.0???

11. Cont’d
September 1, 2020 - BSC launches
- At launch, lending protocols such as Aave and aggregators such as 1inch
were accessible
- Cross-chain liquidity (which is what every L1 is scrambling for) already
included RenVM and Thorchain
- 10 days later, Binance announces a $100 million developer fund for dapp
makers to build on BSC
You ask: aren’t all L1s trying to do that too?

13. BSC dapps
● Venus: Compound + Maker combined
● Pancake: Uniswap
● Auto: Yearn
Replicated a lot of the utility found on Ethereum mainnet. Lots of cross-chain / bridges
launched or underway (most notably xDai and RenVM)
The $100mil fund has an aim of course to also attract coin issuers and developers
What about activity on any of the dapps?

16. Is any of this controversial?
● While BSC isn’t being marketed as an L2, L2s need to quickly step up their game.
● Why?
● By some metrics, BSC is not decentralized... I have written many articles on this very
topic, so I grok the "it isn't fully decentralized" argument.
■ Oodles of threads from Ethereum fans basically arguing with themselves as if it is BTC
versus BCH circa 2017 (no one is claiming that BSC is Ethereum 1.0 or 2.0)
○ But I don't think that currently resonants with most coin issuers or traders
● At ~300 tps and low gas fees with all of the tooling and composability of EVM... BSC
is basically a faster version of POA/xDai Chain glued directly into Binance. By listing
on Pancakeswap you get direct access to retail traders bypassing a bunch of
frictions such as high gas fees on Ethereum / Uniswap
○ Why should these users wait around for L2s or pay relatively high gas fees?

17. Trade-offs
● Binance currently feeds BSC the perfect customers - retail traders that cannot or do not
want to pay ETH txns. E.g. If you just FOMO’ed into coin trading, why would you spend
10-20% of your balance sheet on transaction fees? Coupled with some crazy APY…
similar to Sushiswap in summer 2020.
● For devs, BSC is kind of a 3rd party "API" for Binance: no need to relearn Binance API or
access their security infrastructure, just redeploy a contract on BSC. Does this make it a
killer "API of 2021”?
● Lacking TVL or deep ties into an exchange, other sidechains (apart from Serum) or layer
2s will need to make a stronger case for decentralization (resiliency) and data
immutability.
● NFTs may be one of Ethereum’s saving graces, since nobody wants to see their million
dollar collectables disappearing or do not have "finality" (may be harder to reorg ETH or
xDai).
● Also, BSC does not natively integrate into MetaMask: need to add a custom network or
use Binance’s wallet.

18. Conclusion
● Fools errand to throw shade at lower
gas fees and a ~10x increase in
throughput.
● Is BSC perfect? Not all. Super duper
decentralized? Not at all. Good
enough for retail traders to play on
AMMs and yield farm? Yup.
● Current sentiment of retail traders
(even Mark Cuban!) seems to be that
they value cost savings and APY over
decentralization and finality.