Binance CEO Says He Fully Expects DeFi To Cannibalize Its Crypto Exchange
Binance CEO Changpeng “CZ” Zhao recognizes the contradictions inherent in trying to tap into the fast-growing business of decentralized finance, or DeFi, while trying to defend his company’s reign as the world’s largest cryptocurrency exchange.
The company’s new foray into DeFi, Binance Smart Chain, attempts to replicate some of the features of the Ethereum blockchain that have proven fertile for developers building blockchain-based decentralized transaction and loan applications that, in theory, could one day. challenge traditional lenders and Wall Street transaction firms. But DeFi could also threaten large cryptocurrency exchanges like yours.
Like rival cryptocurrency exchanges OKEx, Huobi, and Coinbase, Binance is trying to maintain its central role in digital asset markets, as emerging DeFi projects such as Uniswap, Curve, Balancer, and SushiSwap attract a larger share of the industry trade volumes. Zhao says he’s open to the idea that Binance may have to adapt its business model to remain relevant, especially with the full collateral locked in DeFi protocols that has risen 16 times this year to $ 11 billion.
“Our mission is not to build a CeFi exchange,” Zhao said in an interview with CoinDesk, using a shortened term for centralized finance. “Right now, it is one of our largest businesses supporting our growth. But in the long term, we want to push for decentralization. “
When designing Binance Smart Chain, the company had to sacrifice elements of decentralization to compete against Ethereum and protect the company’s brand. Binance Smart Chain is controlled by 21 node operators, who are chosen by the Binance Coin (BNB) holders. But because the company is one of the largest holders of BNB tokens, it retains significant control over the direction of the project.
“There is a trade-off between more decentralization versus speed, so we think that 21 community-managed nodes is probably enough,” Zhao said in the interview.
The aim of Binance Smart Chain is not to be “the Ethereum killer,” says Zhao, but to provide an alternative to users and developers frustrated with Ethereum’s rising transaction fees.
“There are people who are more interested in decentralization,” Zhao said. “They will probably keep Ethereum.”
An “anything goes” culture thrives on DeFi, with ridiculously named projects from Yam to SushiSwap exploding in popularity seemingly overnight, only to quickly fade. But Binance cannot afford to completely let go of the reins of its DeFi project; there are reputational concerns, a brand to protect.
BakerySwap Falls Flat
After the launch of Binance Smart Chain earlier this month, anonymous developers used it to create BakerySwap, a type of decentralized trading network known as an automated market maker, similar to Uniswap.
Zhao tweeted that he was “Introducing BakerySwap” and that his message was “not an endorsement and SUPER HIGH RISK”, but that the project was “causing quite a stir on the street.”
An hour after the launch of BakerySwap, the protocol crashed, and Zhao deleted his previous tweet
“There are probably more projects that failed on Ethereum, but no one complains to Vitalik,” Zhao said, referring to Ethereum founder Vitalik Buterin. “So I think it takes people a while to realize that, ‘Look, the projects on Binance Smart Chain are not managed by Binance.’
Zhao anticipates that DeFi will become more popular in the Asian markets of China, Thailand and Singapore.
“We just experiment with a lot of different things, then something will stick,” he said. “And when something sticks, we want to push ourselves and also drive our innovation in the same space.”
Zhao has said that if decentralization wins out as the dominant business model for trading venues in the digital asset markets, Binance could still benefit from its BNB token holdings. In the interview, he said that the company could also benefit by shifting its focus to building decentralized applications.
“So, in my mind, I’m never worried about the business model,” he said. “I am always much more concerned if we have users using the product. There are always several options for business models, so the key is to create something that is useful. “
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