It has become painfully clear for anyone that has made a transaction on Ethereum lately that it’s become financially unviable for smaller amounts. The world’s leading smart contract network has come under heavy criticism recently for its soaring gas fees, though some will say that is a testament to its success and demand.
It has been evident since its launch that Binance has lofty ambitions. Its latest move is focused on Ethereum with Binance’s own network ‘Smart Chain,’ but can it dethrone the current king of DeFi?
Binance Smart Chain Launched
According to the official company blog, Binance Smart Chain was launched on Sept 1. The new blockchain is a parallel chain to Binance Chain that will enable smart contract creation and a staking mechanism for its own token, BNB.
In all essence, it sounds exactly like ETH 2.0, which is still a long way away despite recent progress on the Phase 0 Medalla testnet.
Binance Smart Chain (BSC) was first unveiled in April 2020 and touted as an Ethereum Virtual Machine-compatible blockchain that does everything Ethereum can do, but faster and cheaper. The announcement added that BSC has introduced a Proof of Staked Authority (PoSA) consensus mechanism, creating an ecosystem where validators, token holders, developers, and users all benefit from a blockchain that offers high performance and ample space for further innovations.
It continued, stating that the launch has been timed with the DeFi boom which has seen the sector explode by 720% in terms of total value locked over the past three months.
Users can benefit from low-cost transaction fees that can be as cheap as $0.01, and a high-performance network capable of producing a block every 3 seconds. Cross-chain compatibility will help to increase DeFi interoperability while staking opportunities will benefit BNB holders.
Binance stated that it has collaborated with a number of blockchain and infrastructure providers such as Chainlink, Band Protocol, and Trust Wallet. On the DeFi side, Smart Chain has been supported by Swipe, Aave, 1inch, WazirX, dForce, Spartan Protocol, and MCDEX among others.
BNB Price Reaction
As expected, Binance’s native BNB token got a boost from the launch news. The exchange-based token has been grinding higher for the past two months but it took off yesterday adding 11% on the day and topped out over $25.50.
Nearly all crypto assets have been strengthening over the past five months and BNB is among those sprinting back to their 2020 highs, many of which were made in February.
Currently, the token is only 33% down from its all-time weekly high close of around $37.25 which was made in June 2019.
If staking takes off and BSC gains momentum in the DeFi sector, BNB could quickly reclaim a higher position in the market capitalization top ten. At the moment it’s been knocked down to the tenth spot by the likes of Chainlink, Polkadot, and resurgence in Cardano prices.
CEX Concerns Over DEX Popularity
A surge in decentralized exchange (DEX) usage, volumes, and liquidity in recent months would have certainly been noticed by their centralized brethren, who may have seen a decline in these metrics.
As a result, Binance CEO Changpeng Zhao has made repeated jibes at Ethereum and those that use it:
The high ETH network gas fees is causing problems for most exchanges, running with $10-20 loss on each withdrawal.
Will have to adjust our withdrawal fees sooner or later.
Binance (@cz_binance) September 1, 2020
However, he did add that ‘one blockchain to rule them all’ is unlikely due to capacity limits, so there is a need for faster blockchains and more of them.
DEX usage has skyrocketed in recent months as the liquidity farming frenzy heats up. Metrics from Dune Analytics revealed that the August trading volume increased by over 165% month-over-month. The platform added that the total volume over the past 30 days on decentralized exchanges was in excess of $12 billion.
Uniswap has taken the lion’s share of this volume with 68.5% for the month as yield farmers scramble to grab the latest DeFi food token in what has been termed ‘vampire mining.’
DeFi Pulse has reported that Uniswap is now the number one protocol in terms of TVL with $1.64 billion, which is just slightly above Maker.
The total amount of crypto collateral locked across all DeFi platforms is now at a new all-time high of $9.5 billion, an increase of almost 140% over the past 30 days.
Ethereum Gas Fees Reach All-Time High
Binance’s latest blockchain offering could not have been launched at a better time with Ethereum’s average transaction fees surging into the stratosphere.
Over the past week, ETH average transaction fees have skyrocketed 450% from around $2.40 to their highest ever levels at $13.20.
At no time in the history of the network have the costs to use Ethereum been higher.
The previous peak average of $6.60 came when the Yam farming frenzy was in full swing, but now it’s Sushi that is taking all the heat.
Analytics firm Glassnode reported that the median gas price on Ethereum also hit an ATH of 485 Gwei.
The median gas price on #Ethereum hit an ATH of 485 Gwei in the past hour.
— glassnode (@glassnode) September 1, 2020
The outcome is unprofitable for most users, but very profitable for ETH miners who are setting new records for hourly earnings.
DeFi is the undeniable driver of Ethereum fees at the moment and unless Binance has a way of instantly converting thousands of existing protocol smart contracts into its own system, this is unlikely to change in the foreseeable near future.