Odaily Frontline | Is the BNB burned by Binance every quarter really linked to profits?
On January 18, Binance officially announced the completion of the BNB destruction in the fourth quarter of 2019. According to the Binance announcement, nearly 2.2 million BNB (2,216,888 BNB) were destroyed this time, worth about 38.8 million US dollars.
Given that Binance previously mentioned in the BNB white paper that the value of destroying BNB each quarter is 20% of the net profit of the quarter, the data of "US$38.8 million" has been interpreted by many market analysis agencies as Binance's 2019 In the fourth quarter of 2019, it achieved a net profit of US$194 million. However, is this really the case?
Larry Cermak, director of research at The Block, pointed out on Twitter today: "Few people know one thing - Binance revised its white paper last summer, and the burning of BNB is no longer based on quarterly net profit. All market analysis (Such as Arca, Messari) are inaccurate, but Changpeng Zhao is happy to forward these analyzes. In fact, the current quarterly burning of BNB is based on Binance’s transaction volume data.”
Odaily Note: Larry Cermak pointed out that the revision of the white paper occurred in the second quarter of 2019. According to the screenshot given by it, Binance did delete "20% of the quarterly net profit will be used to repurchase BNB and destroy it" in the BNB destruction plan, and replaced it with the description "BNB will be destroyed according to the currency trading platform. transaction volume data".
Larry claimed that Changpeng Zhao told him at the time: "We deleted the description of profits because some regions tend to associate profits with securities, and we want to disassociate BNB from securities. So next, we plan to use this A new way to describe how BNB is burned.”
According to Zhao Changpeng’s explanation, Binance’s modification of the BNB burning method is due to regulatory considerations. However, the new burning method does not seem to be transparent enough. In Larry's original words, "they can burn whatever they want".
Larry pointed out that in Q4 of 2019, the value of BNB destroyed by Binance hit the second highest record since Q4 of 2017. However, this number is interesting because while the number of BNB burns increased, transaction volume actually decreased during the quarter.
For example, in Q2 of 2019, Binance destroyed a total of $23.84 million worth of BNB, while the transaction volume in the same quarter was $151.7 billion. In Q4 2019, Binance’s transaction volume dropped by 47%, yet the value of burned BNB increased by more than 60%. The chart below calculates the ratio between Binance’s BNB burn value and spot trading volume for each quarter, and the changes are evident.
Some believe that the change in the data can be attributed to the futures trading market that Binance has since launched. Larry Cermak explained that this theory is also not valid.
"Comparing spot and futures volumes is almost pointless...Futures offer high leverage and this is clearly shown in the volume. On top of that, futures trading fees are 3-4 times lower than spot trading. So Attributing the fluctuations in the above ratios to 'Binance making more money from futures trading' also doesn't make sense. Spot trading probably still contributes over 80% of Binance's revenue. Binance Q4 couldn't be more profitable than Q2 .”
Larry concluded: "My theory is that Binance just burned more BNB by themselves. The more they burn, the more headlines will make people feel that Binance's performance in the fourth quarter is real. That's fine. But if you look at all the data, it's impossible."
“All exchanges struggled in Q4, and Binance was no exception. No matter how many BNB they burned. Binance is a very successful company, but it’s not as successful as people think.”
