Analysing the BNB coin.

Hey so let’s have fun lookin at the Binance (BNB) coin. Or token. Whatever.

Look, the difference between the two terms is slight, messy and not worth worrying about.

I like sleeping and hate puzzles though!

Ok. If the thing has it’s own blockchain, it’s a coin. If it exists on another coin’s blockchain, it’s a token. There isn’t much more to the distinction though.

Thank heavens! I can rest again.

Ok. So The token BNB was released by the exchange Binance — examined here — in an ICO. That’s an “Initial Coin Offering”, which is just a way for a company to raise money from the general public while bypassing all the financial regulations.

Oh I want to do one!

Everyone wants to do an ICO!

No, you don’t. The SEC in the US is now acting to charge/shut down participants that engaged in illegal ICOs. The SEC has indicated that all ICOs are, in fact, probably illegal.

Now, for the gist of the Binance ICO:

1. The ICO was a utility token called BNB (although as noted, all tokens seem to be security tokens). The token gives holders a discount on the Binance exchange for fees.
2. Tokens are destroyed at a rate of (20% of quarterly profit) / quarter, with a total of 100 million tokens to be burnt (destroyed) in this way.
3. There were originally 200 million tokens, 100 million for sale and 100 million for Binance friends & family (&angels).

Does that mean the token price increases?

No, not really. There’s no reason for this token to increase in value at all, so destroying a bunch of them doesn’t mean the price will move up. You might disagree but the price has dropped after burning previously.

How does this token as a discount fee thing work?

If your fee for some trade is, say, 0.001 BTC (a thousandth of a Bitcoin), then you just need the equivalent amount of BNB (Binance coin) to pay that — whether that is 1 BNB or 1,000 BNB or 0.0000001 BNB it doesn’t really matter.

Why?

Because you’d buy the BNB with the BTC you would normally use to pay the fee:

1. Let’s say your fee for some trade is 0.001BTC.
2. Using the tokens gives a 25% discount.
3. Instead of spending 0.001 BTC on fees, you spend 0.00075 BTC (ie 75% of 0.001) and buy an equivalent amount of BNB.
4. Now use that for the fees.
5. In effect, you saved 0.00025 BTC.
6. Well, almost, because you get charged fees when you buy the BNB coin too.

Of course you do.

Bunnies make even fees better.

So in practice, what matters is the ratio between the BNB and BTC at the time you buy, but that ratio really shouldn’t be moving much at all. After all, why would it? There’s no reason to hold the BNB coin, you should technically just buy it to make a trade.
In fact, because of the coin’s annually decreasing discount, from July 2021 the token offers no additional benefit. Because you get charged fees to buy the darn thing in the first place, it would be cheaper to not use the token at all after 2021.

Behold the fee discount structure of a token that is up 4,500%

In practice?

In practice, well, it’s crypto. The BNB token has gone up in value from ~0.10 USD to as high as ~25 USD . Currently it is ~4.50 USD.

So, what’s the point of the BNB coin?

I don’t know. They could have just given everyone using their exchange a 25% discount (or whatever it really is, given you pay a fee for buying the BNB to pay a reduced fee). They could have sold coupons to people to buy to do this too — and then *destroyed all the coupons like a normal company*. Instead, they wanted to do an ICO and have a coin that rocketed in value, so they chained a business case to the poor hapless coin and sent it out, covered in ham, to the ravenous hordes.

Actually, the word horde probably comes from the Mongolian “ordu” for head quarters.

I bet other, less cynical people have valued it though, right?

Some people write pretty crazy things about how the token is worth much more, although I cannot follow the argument at all. And if I cannot follow it, I’ll make sure to point it out to you — like what I’m going to do now.

First, below is a screenshot of the gist of this crazy analysis:

The “updated model” is a google sheet that cannot be inspected, and has a lot of “#N/A” entries…

Wait, why is the fair price 30.89?

No idea.

Is the Binance exchange really valued at 30 Billion USD?

No. The author just took a different, securities exchange in a different country, made up a PE ratio for it, and multiplied that number by their assumed profit for Binance for a year (and in the process, ignored the Q1 and Q2 profit data entirely).

Wouldn’t that… wouldn’t that be wrong, using the P/E ratio to get the market cap anyway?

Yes, the P/E ratio has nothing to do with market cap or enterprise value, the “P” stands for share price. It’s a ratio of share price / earnings per share. But welcome to crypto. Nobody knows anything and numbers mean what you want them to mean.

Does anything in the analysis actually make sense?

Honestly, no. I’ve reached out to BambouClub to talk about the analysis in the article though!

Ok.

They never responded though.

Oh.

So that’s the deal with the BNB coin.

So… There’s a coin and it has no value and they burn it every quarter and it still has no value and people blog about it saying it has value….

Pretty much. Sorry. Consider it a peek at how crypto works. How even a coin that everyone claims has value and a business case… needn’t make much sense.

Next — I’ll look later on this week at a ratio to consider coins at, if you must use a ratio and are fed up of seeing that “velocity of token” thing. But before that, I look at an actual, real, traded mining company and guess what the future has for it.