Velvet.Capital started with the BNB Chain, and here is why
Explaining Velvet.Capital’s decision to build on the BNB Chain requires a little context
Investopedia.com defines Decentralized Finance (DeFi) as: “an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies. The system removes banks and institutions’ control on money, financial products, and financial services.”
Velvet.Capital considers DeFi as a fundamental driver of blockchain technology. How so, might you ask?
Numerous DeFi protocols have opened up a new frontier of opportunities from simple lending/ borrowing and decentralized exchanges to complex “forms” such as synthetic assets for those excluded from traditional financial markets.
Without going into much technical details development of any DeFi solution will include a technological stack that can be seen in three layers:
- Application Layer– DeFi apps with specific use-cases, e.g., Decentralized exchanges, Lending, Insurance, etc.
- Middle Layer– building blocks built on top of protocols, such as developer APIs and languages, Oracles, Rollups, etc.
- Protocol Layer — The blockchain protocol allows value and data to be recorded and transferred across the chain according to a specific set of rules
Let’s focus on “Protocol Layer” as a backbone of any DeFi product or solution.
Today, developers have several blockchain protocols to select for their future products: Ethereum, BNB Chain, Avalanche, etc.
Different on-chain metrics will put various blockchains on top of the list.
Ethereum blockchain is the undisputed champion if we look at the total value locked (TVL) on its smart contracts, as it comprises 56% of the market vs. only 6% market share of BNB Chain, but this dominance is steadily decreasing.
However, suppose we select the number of daily transactions as the primary metric. In that case, the picture will change drastically: ~5.1 million transactions per day on BNB Chain vs. ~1.1 million transactions per day on Ethereum.
We at Velvet.Capital has strategically selected BNB Chain for our Protocol Layer, and there are three practical reasons for that:
Low gas fees (cheaper transactions)
BNB Chain and Ethereum both use a gas model for transaction fees that measure the complexity of a transaction. Ethereum transaction fees continue to be relatively high as the network operates near capacity. As of 17th of March 2022 Ethereum transaction cost is about $3.9 (and at the peak in May 2021 it reached as high as $70) per transaction vs. $0.3 (with a peak of $1) per transaction on the BNB Chain (10–70X).
(Source: https://bscscan.com/chart/gasprice; https://etherscan.io/chart/gasprice; https://ycharts.com/indicators/ethereum_average_transaction_fee https://ycharts.com/indicators/binance_smart_chain_average_transaction_fee_es)
Faster blocks confirmation times (faster transactions)
Measuring average transaction times on blockchains can be tricky; hence let us use block confirmation time as a proxy for transaction time: 13 seconds for Ethereum vs. 3 seconds for BNB Chain.
The highest number of active users (7-day active addresses)
If we look at the number of active users, BNB Chain is also ahead with ~4 million weekly active users, more than double Ethereum’s ~2.2 million.
The above advantages result from BNB Chain selecting a different consensus mechanism (Proof of Staked Authority) compared to Ethereum using Proof of Work. However, these advantages come with tradeoffs. BNB Chain has a relatively small number of validators running its network, and this topic will be covered in a separate article.
Velvet.Capital is a DeFi protocol that helps people create automated crypto portfolios “on steroids”: it combines modern portfolio theory and yield farming to construct diversified portfolios with additional yield.
- Buy ready-to-use portfolios constructed based on clear parameters
- Enjoy automatic rebalancing instead of making trades yourself
- Earn additional interest on the portfolio with yield farming solutions
- Get a consolidated view across your portfolio with a clear dashboard
Sign up for access to Velvet.Capital application on https://home.velvet.capital/defi and join our community on