Binance CEO addresses myths about Token Economics

Binance recently carried out its 12th BNB quarterly token burn. CZ delved in to address issues on what he thinks makes a good token economics model

By · Jul 19, 2020 . 10min read

In a recent blog post after shortly commemorating its third anniversary, Binance CEO, CZ Changpeng Zao, lays out his opinions on some of the popular facts and myths about token economics in the world of cryptocurrencies.

CZ delved into addressing issues on what he thinks makes a good token economics model. He also outlines how he thinks teams should ensure they stick to their core principle, as stated in their whitepaper.

Characteristically of Binance, it carries out routine quarterly token burn where some amount of BNB tokens are burned. BNB has grown to be among the top 10 cryptocurrencies on Coinmarketcap, all within three years of Binance’s establishment.

Binance recently carried out its 12th BNB quarterly token burn which saw it burn 3,477,388 BNB. The BNB token is an Ethereum-based ERC-20 token valued at $60.5 million worth as at the time of the burn. Binance’s CZ used this opportunity to share his viewpoints on token burns.

The origins of the token burns don’t matter as long as the deflationary long term effect is the end goal

Speaking on token burns and how it impacts any cryptocurrency project, he opines that there’s no difference as to the origin of the token burn, whether from BNB revenue or the team’s portion. He claims both will always result in a deflationary effect on the token value.

And as for the BNB burnt, he says these come from the team’s supply which is vesting for five years of which a certain percentage unlocks on a yearly basis.

You could as well convert your fiat to crypto making crypto spendable on your needs

CZ touched the area of infinite “hodl” where cryptocurrency users fear to spend their holdings because of possible appreciation in the future value of their crypto. He asks:

Well, why don’t you just convert a bit more of your fiat (at least the part you will spend) into crypto, and then you can spend crypto with ease.

CZ, Binance CEO speaking on Myths and fallacies in Token Economics

One would easily see CZ’s point of view, especially as Binance only recently acquired Swipe, a multi-asset digital wallet and Visa debit card platform that allows users to pay with cryptocurrency in stores around the world. It aims to capture the European market and perhaps other regions with this. This is CZ indirectly telling users it is now easier to spend crypto around the world using our card services. He, however, acknowledges concerns about conversion fees user may face but didn’t waste any opportunity to shill its 0.03% competitive fees which are 1/100 lower than its counterparts.

Foundation, Marketing budget, Community growth, or even Reserves all have one name – Team Supply

CZ minced no words in calling out some of the shady practices cryptocurrency project team indulge in all in a bid to control a huge supply of the project token and possibly cashing out on their holders. Acknowledging that some projects are sincere in how they manage these holdings, most within the cryptocurrency space do not. Even though the Binance team control a large portion of the BNB supply, he claims BNB still remains one of the coins with more unique individual holdings than other coins.

Small circulating supply and multiple coins per project are red flags

The CEO also took the time to address the concern on the risks of associating with a project with low circulating supply. He says such coins highly prone to pump and dump, or other potential “manipulations” on its price. He, therefore, advice crypto communities to learn to protect themselves.

And as a way of ensuring his company, Binance continues to serve the broader crypto space well. It always pays more attention to any project with multi-tokens. CZ thinks any multi-token project creates all sorts of issues of conflict of interest for the owners. They may not be able to decide easily on which of the coins to focus.

Change anything but Material in your whitepaper

Expressing his aversion towards material changes in any project’s whitepaper, CZ advises cryptocurrency projects to be wary of such. His reason being that some parts of the community may be negatively affected.

Some projects like Mainframe which recently pivoted into DeFi after struggling to find product-market fit may disagree with CZ’s viewpoint here. After this pivot, Mainframe’s token price has since risen by over 75% just within 3 days. Why shouldn’t it consider a “material change” to its whitepaper anyone may ask.

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