From Tiny Acorns to Billion Dollar Unicorns
Unicorns – startups valued at over $1 billion – are almost as rare as the magical beasts they’re named after. Uber, Airbnb, and Xiaomi all fit that definition. But 2017 created another unicorn, one that the average man in the street will not have heard – Binance. A recent article postulates that the cryptocurrency exchange could be “the fastest profitable unicorn in history”. It took just 143 days for Binance to ease its way into the top three and the exchange has since cemented its place there, regularly claiming the top spot for trade volume. In the last 24 hours, $5.5 billion was traded there.
The numbers alone don’t tell the true story of Binance’ success however. It, like Kucoin, has been prospering thanks to a business model that is based on listening rather than simply dictating. The traditional model, as used by the likes of Bitfinex, Bittrex, and Poloniex, sees exchanges add new coins and tokens at their discretion, with scant regard for what the community wants. There are reasons why it is prudent not to seek consultation or post prior notice of every new coin listing. However, there are also cases where there are clear benefits to seeking user input.
Breaking the Wall of Silence
Up until summer of 2017, Bittrex was the preferred exchange of many altcoin traders. Its popularity came with a price though: the platform’s support channels were constantly badgered by developers and fans clamoring to have their coin listed. Bittrex eventually seemed to wash its hands of altcoins and tokens; since bitcoin gold, it has only made room for Enigma and Unikoingold. Binance has gratefully stepped into the void left by Bittrex’s moratorium on new coins. Each month the community gets to vote on one new addition to the site.
Instead of putting up a wall of silence, the new breed of exchanges, which also includes the likes of Gate.io and Cobinhood, appear more inclined to listen. Poor customer support and unwillingness to countenance customer feedback are two recurring motifs among exchange users. With Twitter traders earning a passive income from referral links to exchanges such as Binance and Kucoin, it is in these platforms’ interests to keep their users sweet and incentivized. Those incentives can include reduced trading fees and even a share of the platform’s revenue.
Tokenize All the Things
In an era where there is a token for everything, it was inevitable that cryptocurrency exchanges would launch their own tokens. Binance and Kucoin have been successful with theirs because there is a genuine use case for them and they add value. The former’s BNB token gained an astonishing 8,000% in 2017 and is currently trading for over $9. Kucoin Shares, which have enjoyed a similar trajectory, see holders paid a dividend of 50% of platform fees.
The route many tokens issued via ICOs now follow is Etherdelta > Kucoin > Binance, with each new exchange adding liquidity and a commensurate bump in price. In a crypto market where startups such as Cardano can achieve an multi-billion dollar valuation without having released an MVP, Binance is that rarity: a unicorn that is profitable and whose valuation is based on current performance rather than future promises.
CEO Zhao Changpeng has shown that he’s not afraid to take on established players such as Coinbase and create a viable alternative. A 100 million BNB coin burn is earmarked in future, which will further boost the remaining tokens’ valuation, and Binance also intends to introduce features such as margin trading and a decentralized hybrid model by year four. Bitfinex spin-off Ethfinex is also going down the hybrid route, showing that there’s more than one way to run an exchange.