2021 has been an impressive year for Binance Coin (BNB), which so far has rallied by more than 900%.
One of the primary drivers of BNB's growth was continued congestion on the Ethereum network. As this struggle carried on, Binance Smart Chain (BSC) emerged as an alternative, meeting the rapidly growing decentralized finance (DeFi) sector's demands.
As BNB reached a $64 billion market capitalization, it has surpassed traditional banks, including Santander, the Bank of Montreal, and UBS. Meanwhile, some analysts point to the estimated value and impact of Coinbase's upcoming direct listing ($100-billion valuation) as a catalyst for the BNB price hike.
A common narrative spun up over the past few weeks is that the direct listing of COIN is also adding value to centralized exchange tokens. Analysts are also speculating that other U.S.-based regulated exchanges like Kraken and Gemini will likely follow Coinbase's path and attempt to raise funds through a stock offering.
To understand BNB's potential, one must first understand the differences between equities (stocks). After this is cleared up, it will be possible to analyze the possible drivers of BNB's appreciation.
BNB does not represent shares of Binance
BNB token provides holders with a discount on trading fees, and it is required for those wishing to participate in Binance Launchpad token sales. As BNB gained liquidity, it also became a base pair for other cryptocurrencies at Binance exchange.
Over time, other uses emerged as the Binance Smart Chain gained traction. For example, BNB can cover network fees and as serve as a utility token in the ecosystem, which includes decentralized apps (dApps) and games.
Periodically Binance burns (destroys) some of the non-circulating BNB tokens based on the exchange's overall trading volume. This strategy's efficacy vanished over time as investors understood that these destroyed tokens never entered the circulating supply.
The Binance Smart Chain network uses a Proof of Stake Authority which eliminates the need for miners or expensive transaction fees. The platform kept its compatibility with the Ethereum Virtual Machine (EVM) and has a similar token and smart contract structure.
Many tokenized (or pegged) cryptocurrencies have gained relevance in Binance's networks, allowing users to bypass miner fees. Another benefit provided by Binance Smart Chain's BEP-20 model is staking and farming capabilities in its vast network of decentralized applications, including the PancakeSwap DEX and Venus lending platform.
As shown above, Binance Smart Chain has been gaining ground on other DeFi protocols in terms of total value locked. Thus, new use cases for the BNB token emerged to take center stage as farming, liquidity pools, and base pairs utilized the token throughout the network.
Banks are reliable dividend providers, but DeFi could overtake the system
Equity shareholders are entitled to a piece of a listed companies' net earnings. This amount will vary between each quarter, as the board of directors may opt to repay debt or incorporate some of that money into reserves. However, banks are known cash cows and thus usually a reliable source of dividends payouts.
Santander (SAN) dividends paid over the last 12 months divided by the current stock price yield a 3.7% gain, and Bank of Montreal (BMO) shareholders received a similar yield. Switzerland-based UBS yields went down in 2020, but historically it has averaged 5%.
Bank shareholders effectively have voting rights in shareholders meetings, and minority groups could block measures that would hurt them financially. On the other hand, these equity holders are 100% dependent on the bank's net income and growth.
BNB, on the other hand, could survive without the direct influence of Binance exchange. In the future, if Binance Smart Chain achieves independent developers and validators, its ecosystem might continue to thrive. In theory, if token loses its dependency as the ecosystem grows, becoming less centralized.
If done correctly, BNB's market capitalization could surpass that of the entire traditional banking system, but before this can happen these networks and decentralized applications need to gain adoption and prove that they can stand up to the needs of mainstream investors and banking clients.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.