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【Analysis】Binance sets record for BNB burn in Q1; The Block's critique and honest evaluation

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【Analysis】Binance sets record for BNB burn in Q1; The Block

In the world of cryptocurrency, since most tokens have a fixed supply, burning a certain amount of tokens is equivalent to currency contraction. People anticipate that reducing the circulating supply in the market will drive demand and push up the token price. Binance has completed the token burn for the first quarter of this year. In the midst of global economic contraction, Binance stated that they set a record for the highest quarterly burn amount and value.

However, despite this, Larry Cermak, the research director at The Block, jokingly referred to as the "Binance Hunter," has raised a series of analytical challenges to the stereotype that "burning tokens equates to token price growth," while also revealing the facts as he sees them.

Binance Burns BNB

Most cryptocurrencies set a fixed supply to maintain scarcity - ensuring they can't just be printed endlessly. Exchanges often conduct buybacks and burns of their platform coins, using profits to repurchase circulating platform coins from the market and burn them, or directly burning platform coins that have not yet been issued or are held by the exchange themselves. The goal is to reduce the circulating supply, create scarcity, and further drive up the value of the coin. This is also a "trick" to make users believe that the coin price will rise.

Yesterday, Binance issued a quarterly burn announcement, burning 3,373,988 BNB tokens in the eleventh quarter, equivalent to around $52.5 million. Binance also announced significant developments for the quarter, including the launch of the Binance Cloud decentralized open platform, global rollout of Binance P2P, new features like Binance Futures cross margin, investments in BxB (a South Korean fintech company) and Numbers (a blockchain protocol), and the establishment of an India Blockchain Fund with WazirX.

It's worth noting that in the second quarter of 2019, the amount of BNB burned by Binance was still determined by 20% of the quarterly profit. Due to challenges faced by Binance and the implication that linking the burn amount to profits could suggest BNB as a security, potentially leading to legal issues, in the middle of last year, Binance made undisclosed changes to its whitepaper, decoupling the burn from profits.

Larry's Critique

Upon hearing the news, The Block's research director Larry Cermak, who has already been blocked by Binance CEO on Twitter, took the opportunity to analyze why this burn might not be as significant.

Larry stated that the primary reason is that Binance is burning BNB tokens that are not bought back from the market but are from the token treasury and have never been in circulation, although they are still part of the total token supply.

The second reason is the aforementioned change in the whitepaper. Larry mentioned that Binance no longer commits to burning BNB based on profits but on trading volume.

Larry believes that burning BNB based on trading volume is a very vague concept, as the calculation method is unclear, and the tokens being burned have never been in circulation.

Positive Review: 2020 Q1 is Indeed Binance's Best Record

Larry mentioned that 42% of cryptocurrency trading volume comes from Binance and Coinbase combined. According to traffic data websites, Binance had 66.59 million visits in the first quarter, a 28% increase from the fourth quarter of the previous year.

Larry also noted that in spot trading, Binance achieved its second-best quarter record (the best being in Q1 2018 when Bitcoin was at $20,000). Spot trading volume increased by nearly 91% from the previous quarter, rising from $80 billion to over $150 billion.

In addition, Binance launched its futures contract platform in the third quarter of last year. Since then, its trading volume has been steadily increasing month by month. Since the fourth quarter of last year, futures trading volume has increased by nearly 190%. Binance has also been generating significant revenue from its margin trading, although the exchange has not disclosed any data regarding the amount of its lending or interest income.

Larry's Conclusion

Despite Binance burning tokens that were never in circulation and magnifying a burning behavior that is fundamentally unrelated to profits, this quarter has indeed been a fruitful one for Binance based on various data.

Interestingly, Larry even simulated the amount of BNB that Binance might burn on April 15th: 4.3 million BNB. Despite not knowing the actual calculation formula used by Binance, he believes that Binance could burn more based on trading volume.

Finally, Larry couldn't help but criticize Binance CEO Zhao Changpeng, who blocked him. He stated, "Binance has always tried to present itself as a transparent exchange. However, in my experience, its CEO immediately blocks people when they say things he doesn't like. Even employees often don't understand what he wants. This is one of its most opaque points." Larry finds it absurd that Zhao Changpeng retweeted someone's post about the amount of tokens burned and linked it to Binance's profit for the quarter, despite claiming that burning is unrelated to profits and no burn calculation formula has been disclosed.