Token burning controversy! Zhao Changpeng explains the coin burn mechanism in a lengthy article, Larry retorts: Did you take down the whitepaper as well?

The cryptocurrency exchange Binance completed its twelfth quarterly token burn on July 18th. The revised plan from last year includes changes such as burning tokens based on trading volume rather than profit and burning tokens from the team's holdings instead of repurchasing from the market. Critics often attack Binance based on these points, leading CEO Changpeng Zhao (CZ) to step in on the 19th with a discussion on token economics to address common misconceptions, sparking further controversy.

According to previous reports tracking Binance's token burns, controversy arose last year due to "undisclosed changes" to the BNB whitepaper, decoupling the burn from profit. Moreover, Binance actually burns non-circulating BNB tokens (team-held portion), but emphasizes the burn unrelated to profits.

The Block's Research Director Larry Cermak, a long-time observer of Binance's actions, did not miss the twelfth quarterly token burn. He believes Zhao's lengthy article was aimed directly at his comments. Larry claims that Zhao has blocked him on Twitter, turning their arguments into a "crossfire" from a distance.

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Money Fallacies

CZ: I often hear people in the community say they don't want to spend Bitcoin or BNB because they fear that the price might rise and they would miss out on potential gains. So why not convert more fiat currency, or at least turn daily expenses into cryptocurrency, allowing you to spend easily without worrying about price increases.

Some may argue that the cost of transactions would be too high, but in reality, it's actually very low. Binance charges a fee of 0.03%, compared to 3% with credit cards, making Binance's fee one-hundredth of that. Some also say that using cryptocurrency for spending is not convenient, and I agree, we are actively working on improving that.

Larry: It's obvious that most people have never paid a 3% fee on a credit card. Firstly, these fees are usually lower than 3%, and secondly, the cost is often borne by the merchants. Most credit cards also offer 1 to 2% cashback.

Where Does the Burned BNB Come From?

Changpeng Zhao seems to be alluding to long-standing criticism from Larry here. He points out that even some initially smart journalists get stuck on the debate of "is it from team holdings or buybacks and burns?" CZ believes that although there is a distinction, both ultimately benefit the scarcity of BNB.

CZ: There is no foundation manipulating BNB. BNB has been completely transparent since the day of issuance, with a portion allocated to "team holdings" during the ICO stage, unlocking in batches over five years. It's been three years, and some tokens have already unlocked. If we want, we can buy back. The key is that team-held BNB belongs to the team, and Binance's profits belong to the team. Token burns not only reduce our holdings but also reduce the total circulation, making circulating BNB more valuable.

Larry: CZ says some tokens have already unlocked, but Binance's 8th burn announcement from July last year clearly states that the team will not hold any initial token allocation of BNB. BNB obtained through services will be purchased, and all BNB will be used in the burn program.

Larry: I wonder how a lawyer would view this explanation. CZ claims that burning makes BNB scarcer and more valuable. Market value dictates everything, and BNB was $40 a year ago, now it's $17.

Does the Burn Come from Market Buybacks?

CZ: Most of Binance's revenue comes in the form of BNB. We "HODL" BNB, do not convert it to fiat, but we can sell BNB for fiat and then buy back BNB for burning. Is this meaningful? No.

Some exchanges proudly claim to have repurchased platform tokens before burning, and some even see this as a good thing. But this means the exchange has no revenue, indicating that users are not using their platform tokens as fees, and also that the exchange does not hold its own platform tokens but dumps them all into the market. Should exchanges HODL their platform tokens? You decide.

Larry: This segment is just nonsense. While most of Binance's revenue indeed comes in the form of BNB, Binance also receives fees in BTC and other forms of cryptocurrency. I'm not sure how much, but I can assure you it's a lot! They can use Bitcoin to repurchase and burn BNB in the BNB/BTC pair, without needing to go through fiat!

Changing the Whitepaper Content

CZ: I am against changing the whitepaper, and indeed, Binance has made some adjustments to the whitepaper, but they are only superficial and have no substantive implications. In January last year, at the advice of a third legal counsel, due to potential misinterpretation as a security in certain regions, we altered the wording between "buyback" and "20% profit" in the whitepaper. The part about buyback was not explained clearly, but we have clarified it, we HODL Binance Coin. We explained this to journalists and the community at the time.

Larry: In reality, there was no buyback, and users were not informed that these tweaks would result in significant changes. Regardless, this led to changes in the standard (rather than no difference as CZ claimed). He mentioned explaining to journalists at the time, which is a joke, why would he bribe journalists and explain? It's because I caught them changing the whitepaper last year and pressured them.

CZ: At the time, the general concern in the community was, will Binance stop burning tokens? Will the burn amount decrease? No, we explained that the burn amount would not change, we only altered the wording in the whitepaper, meaning the burn mechanism remains unchanged, and our subsequent actions have proven this.

Larry: So, Binance still determines the burn amount based on revenue, but can't say it due to legal reasons? I'm confused, and BNB holders might be too.

Finally, Larry points out that Binance has yet to address the issue of removing the BNB whitepaper link from the official website two months ago. He sarcastically notes that Binance's announcement claims to "execute token burns based on the whitepaper," yet the whitepaper has been taken down from the website.