BNB Chain is a public, open-source blockchain that aims to deliver scalable smart contract support for decentralized applications. It seeks to accomplish this with a modular design and scaling solutions. BNB Chain consists of a multichain framework — the BNB Smart Chain, Beacon Chain, BNB Sidechain, BNB ZkRollup, and most recently, Optimistic Rollup and BNB Greenfield.
The Beacon Chain is the dedicated layer for governance (staking and voting), and the BNB Smart Chain is the dedicated layer for Ethereum Virtual Machine (EVM) consensus and execution. The BNB Smart Chain is based on a Proof-of-Staked-Authority (PoSA) mechanism and is powered by a growing network of active validators. The BNB Sidechain framework is designed to create BNB Smart Chain-compatible sidechains. Plans also include the launch of ZK-rollups and optimistic rollups for high-performance scaling, allowing sidechains to customize solutions. Finally, BNB Greenfield is designed to serve as a decentralized storage infrastructure within the broader BNB Chain ecosystem.
During Q2, the Securities and Exchange Commission (SEC) alleged that several exchanges (including Binance.US) engaged in unregistered offers and sales of cryptoasset securities, including BNB.
The SEC complaint in June coincided with downward pressure on the value of BNB, which declined 25.2%. In contrast, the total crypto market cap increased by 2% QoQ, which was primarily driven by BTC and ETH, rising 7% and 6%, respectively. Alt-L1 tokens tended to decrease more than ETH due to the SEC’s regulatory complaints. BNB concluded the quarter as the fourth largest cryptoasset by market capitalization, reaching $37.5 billion.
Beyond the circulating market cap, the circulating supply of BNB continued to decline due to BNB’s token-burning mechanism. By June 30, 2023, over 46 million BNB (~23% of its 200 million total supply) had been burned since the burn program began in 2017. BNB has averaged a deflationary rate of 1.1% over the last year.
Revenue in BNB (total transaction fees paid in BNB) declined by 6.1%, while network value decreased by 25.2% QoQ. The decrease in revenue was largely due to a 25.5% decrease in average transaction fees.
The difference between the change in revenue versus market cap (in USD) suggests that overall fundamental network utility was more significant than market behavior. The circulating market cap of BNB was 220x the annualized quarterly revenue at the end of Q1 2023 versus 179x at the end of Q2, suggesting a move to a more favorable valuation.
While a simple P/S ratio may provide directional insight into fundamental value accrual versus speculative market behavior, it is not necessarily adequate for evaluating blockchain assets. Other valuation techniques have also been introduced, including Messari’s Expected Demand for Security Model and Multicoin’s Sum of the Parts framework.
BNB Chain’s daily average active addresses reached ~1.4 million and increased by 25.6% QoQ. The metric nearly reached the all-time average of ~1.5 million reached at the end of the last bull cycle in Q4 2021. Average new unique addresses increased 91.1% QoQ and reached all-time highs after a spike in activity in late April.
BNB Chain’s daily average transactions also increased by 24.4% QoQ. The increase in BNB Chain address and transaction activity was largely tied to increased activity from LayerZero.
LayerZero is a lightweight, generalized cross-chain messaging protocol. To showcase its use cases, LayerZero Labs developed Stargate, a bridge built on top of LayerZero that avoids using wrapped tokens, increasing user experience, capital efficiency, and removing attack vectors.
After LayerZero announced its $120 million Series B fundraising on April 4, activity spiked on many of its supported networks. By June, BNB Chain was hosting 200,000-250,000 LayerZero and Stargate daily transactions and 50,000-60,000 daily unique addresses from those transactions. In addition to Stargate, activity also stemmed from Radiant Capital, an omnichain money market built on LayerZero that deployed on BNB Chain in Q1.
Beyond LayerZero, transaction activity continued to be dominated by PancakeSwap, with the launch of its V3 during Q2. Further, transaction activity was sustained on Hooked Protocol and CyberConnect after experiencing noticeable traction in Q1 2023.
While daily transactions trended upward, the average daily transaction fee in BNB decreased by 25.5% QoQ. During Q2, BSC validators voted to reduce gas fees by 40%, from 5 to 3 Gwei. The reduction was implemented to remain competitive with other low-cost Ethereum Layer-2 networks.
Total stake, average engaged stake (total stake divided by total supply), and the number of validators that validated a block remained relatively unchanged QoQ.
While staking and decentralization remained stable through Q2, the network followed two consecutive quarters of expansion after it implemented the following:
BEP-131, 153, and 159 should continue to gradually increase staking participation, facilitating a greater distribution of stake.
BNB Chain also plans to further decentralize by introducing a new validator reward model (balanced mining) and a validator reputation system. These steps would increase the number of validators from 29 to 100.
The drivers of BNB Chain’s network activity and fundamental value accrual include its growth strategy to attract developers and grow its ecosystem.
BNB Chain has established several growth initiatives that continued through Q2 2023, including:
Simultaneously, the BNB Chain community launched new initiatives to invest in its ecosystem throughout the quarter, including:
Following the crypto market relief rally in Q1, TVL denominated in USD was down QoQ, decreasing by 26.3%. However, TVL denominated in BNB was relatively flat (-2.8%).
Although excluded from the above TVL figures to avoid double-counting, liquid staking continued to support the DeFi ecosystem. Binance staked ETH launched during Q2 and grew to over $100 million TVL, while TVL on BNB Chain’s most prominent liquid staking derivative (LSD) Ankr declined from $70 million to $50 million (-28%) QoQ.
Weekly DEX volumes reached their highest levels in a year; however, nearly all of the top DeFi applications on BNB Chain experienced declines in TVL. Of these, BNB Chain's most prominent protocols by TVL were PancakeSwap (40%), Venus (13%), Alpaca Finance (20%), and PinkSale (15%). However, with renewed activity on LayerZero, Radiant Capital experienced significant initial traction after its launch on LayerZero in Q1, and its TVL increased by 151% QoQ.
The continued shift in TVL dominance on BNB Chain signals the formation of a more robust DeFi ecosystem. There is a decreasing risk of the overconcentration of TVL in a single application like PancakeSwap. PancakeSwap made up ~37% of BNB Chain's DeFi TVL at the end of Q2, down from 45% the prior quarter.
As evidenced by developments such as those with the launch of Uniswap and Radiant Capital during Q1, BNB Chain continued to expand its DeFi ecosystem beyond PancakeSwap. Over 20 protocols were launched or integrated with BNB Chain during Q2.
Notable developments included:
Other launches and integrations included zkMakers, Popcorn, Shopcek, Buff Network, MultiBit, Mean Finance, LS Trade, Prime Protocol, Creditcoin, FlashFlow, KiloEx, Veplus, Orbs, Neptune Mutual, Morphex, KTX Finance, Fibonacci Finance, BullaNetwork, and Earn Network.
BNB Chain's place in the stablecoin space is relatively substantial. It has the third-highest total stablecoin market cap of ~$5.7 billion, trailing behind Ethereum and TRON.
In Q1, BUSD made up 52% of the stablecoin market cap on BNB Chain. However, the BUSD market lost some of its users after regulators forced Paxos to cease the issuance of BUSD. As a result, the BUSD market cap on BNB Chain declined by ~$2.5 billion (~54%) during Q1, and dominance shifted to USDT. In Q2, BUSD on BNB Chain went on to shed another $700 million (~31%) QoQ. Meanwhile, USDT gained 10% in dominance, finishing the quarter with $3.4 billion (~60% of the total stablecoin market cap on the network).
Although BNB Chain's stablecoin market cap decreased 12% QoQ (~$750 million), its decline was offset by some notable developments, including Binance's support for TUSD on BNB Chain. As TUSD value on the network grew by 55% (~$10 million) QoQ, BNB Chain remained in third place regarding total stablecoin value on-chain.
BNB Chain experienced a rebound in secondary NFT sales volume and the number of unique NFT buyers and sellers. NFT secondary sales volume (USD) increased by 233.2% QoQ and approached $2 million in daily sales volume. Meanwhile, unique buyers increased by 298.3% versus unique seller growth of 1,466.3% QoQ.
The increase in activity coincided with several developments across the NFT space, including:
Beyond the above drivers of activity seen in Q2, other notable developments aimed at expanding the BNB Chain NFT sector included:
Era7: Game of Truth, X World Games, Tiny World, Meta Apes, and SecondLive launched within the last year. Through Q1 2023, these five games were the top five gaming applications on BNB Chain, with the highest daily average of unique active wallets (UAW). Through Q2, wallet activity on these five games started to decline. The only exception was SecondLive, which experienced renewed activity and grew its total UAWs by 100% QoQ.
While these top gaming applications saw declines in wallet activity, new games continued to launch and support gaming activity. Notably, Hippo Dash by Gameta and Meta Merge averaged just a handful of daily UAWs at launch. However, by the end of Q1, both were trending upwards, with Hippo Dash averaging ~15,000 daily UAWs and Meta Merge ~10,000 daily UAWs. Additional launches included Cyber Titans, ExoWorlds, Twiplay, R-Planet, and League of Thrones.
Outside of the DeFi, NFT, and GameFi sectors, noticeable network activity continued to stem from social applications and other use cases during Q2.
Hooked Protocol, CyberConnect, Galxe, and SPACE ID emerged as leading social applications through Q1 2023. Unlike users in GameFi, these applications sustained a user base after their initial traction. CyberConnect grew its quarterly total of UAWs from 3.2 million in Q1 to 4.8 million (+45%) QoQ. Additionally, the entertainment platform, Playbux, experienced significant traction in Q2, growing its total quarterly UAWs from ~16,000 to 2.6 million QoQ.
Further, over a dozen social applications launched on BNB Chain striving to join the ranks of the top social applications including DanceFit, Fitburn, dArticle, GPTVerse, CyberTune, Mailchain, DMission, MuratiAI, and GPT Guru.
Beyond SocialFi, other use cases emerged during Q2 as well. One of the most notable applications was Tiny Tap, a subsidiary of Animoca Brands and a code-free platform for educators to create interactive educational content. The application experienced significant growth during Q2, averaging ~30,000 daily UAWs throughout the quarter.
Other notable developments across other use cases like education, artificial intelligence (AI), and privacy, included:
Through Q2, BNB Chain maintained an aggressive strategy to deploy financial and human capital across its ecosystem. Incremental network activity on BNB Chain came with a resurgence of DeFi activity on LayerZero, NTF platforms, and other use cases, especially in the SocialFi space.
Developer engagement began to catch up to BNB Chain’s growth strategy during Q2. The number of unique contracts verified is determined by the number of smart contract verifications, which developers trigger to translate code into a higher-level language. This measure reversed course after dropping in Q1 and grew by 51.9% QoQ.
Further, data sources tracking the events in BNB Chain’s GitHub repository can also give insight into developer involvement. According to Electric Capital's Developer report, full-time developers on BNB Chain increased from 130 to 133 QoQ.
Aside from the ecosystem developments and growth strategies mentioned above, other aspects of BNB Chain’s strategy pushed forward through Q2. Three strategic elements stood out during Q2 in particular:
As part of BNB Chain's efforts to evolve network architecture and functionality, several developments rolled out during Q2, including:
In Q1 2023, BNB Greenfield released its whitepaper. BNB Greenfield is a standalone, storage-oriented blockchain and a decentralized network of storage providers.
BNB Greenfield aims to serve several use cases powered by three core features:
In Q2 2023, BNB Greenfield launched its first testnet, "Congo." It also open-sourced all core infrastructure code, which includes the Greenfield blockchain, storage provider cluster, cross-chain relayer, and corresponding SDKs.
A series of developments and integrations rolled out to improve user access and developer experience. Notable developments included:
The BNB Chain community consistently grew its diverse set of members. Outside of allocating financial capital, the community continued using non-financial means to draw human capital to the ecosystem.
Following the community engagements such as Web3 Mastery, Zero2Hero Program, and Founders Academy in Q1 2023, BNB Chain remained persistent in growing its community in Q2. It ran the two following initiatives:
Despite BNB Chain's progress towards its long-term goals and continued adoption, the ecosystem faced more challenges from the regulatory world in Q2.
After the U.S. Commodity Futures Trading Commission (CFTC) lawsuit in Q1, the Securities and Exchange Commission (SEC) filed a lawsuit against Binance Holdings Limited, its founder Changpeng Zhao, BAM Trading Services Inc., and BAM Management U.S. Holdings Inc. in Q2.
Among other allegations, the lawsuit alleges that the defendants:
Subsequently, the SEC applied for a temporary restraining order to freeze assets held by crypto exchange Binance.US and requested relief for customer assets, both fiat and crypto, held on the platform.
Binance.US released a statement announcing that it had suspended USD deposits and notified customers that their banking partners prepared to pause fiat (USD) withdrawal channels. The exchange maintained 1:1 reserves for all customer assets, and trading, staking, deposits, and withdrawals in crypto remained fully operational.
Binance also shared its intentions to proactively withdraw services from Canada, citing guidance related to stablecoins and investor limits provided to Canadian crypto exchanges. Further, Binance announced the withdrawal of its services from the Netherlands after failing to receive a virtual asset service provider (VASP) registration with Dutch regulators.
For clarity, the lawsuits have a direct impact on the entire crypto ecosystem. Further, Binance and BNB Chain are separate entities — the former is a group of centralized entities, and the latter is an evolving decentralized network. However, Binance, Binance Labs, and the Binance Launchpad help grow the BNB Chain ecosystem (as it does others) through asset listings, liquidity provision, investment, and project launches.
While the outcomes of the ongoing suits are unpredictable, adverse outcomes could slow the advancement of the BNB Chain ecosystem and bring continued volatility to its native BNB token.
As a recent Messari report highlighted, BNB Chain laid out robust plans for 2023 during Q1. Looking ahead, BNB Chain's approach to success will include growth strategies such as the MVB Accelerator Program and improved network functionality.
The network will aim to boost throughput by increasing the network's gas limit from 140 million to 300 million, enabling the processing of up to 5,000 transactions per second.
Further, the network intends to roll out a Rust-based BSC node client and initiate state-offload to reduce data footprint.
BNB Chain also plans to further decentralize by introducing a new validator reward model (balanced mining) and a validator reputation system. These steps would increase the number of validators from 29 to 100.
The roadmap highlights several potentially impactful initiatives, including:
A more recent development focuses on miner extractable value (MEV). In Q2, BNB Chain validators and projects discussed the integration of MEV within the BSC network, with some validators piloting MEV in various formats. This move is in the early stages, but MEV may be on the horizon for BNB Chain.
Ultimately, BNB Chain has wide-reaching plans to remain competitive for the rest of 2023.
During Q2, BNB Chain's daily average daily active addresses and transactions increased by 25.6% and 24.4%, respectively. As part of BNB Chain's efforts to evolve network architecture and functionality, several technical developments were rolled out during Q2, including the Planck hard fork, Luban hard fork, and opBNB.
Staking on the network was stable through Q2. BNB Chain plans to increase the number of validators from 29 to 100 with a new validator reward model (balanced mining) and a validator reputation system.
Incremental network activity resulted in DeFi activity resurgence on LayerZero, NTF platforms, and other use cases, especially in the SocialFi space. BNB Chain's growth initiatives to invest in the ecosystem continued by introducing a Gas Grant Program and the Zero2Hero Incubator in Q2.
Despite the renewed activity, the financial performance of BNB suffered in June, when the Securities and Exchange Commission (SEC) alleged that several exchanges engaged in unregistered offers and sales of cryptoasset securities, including BNB. The SEC complaint coincided with downward pressure on the value of BNB, which declined 25.2% QoQ. Revenue (in BNB) decreased 6.1% QoQ as average transaction fees declined 25.5% after BSC validators voted to reduce gas fees from 5 Gwei to 3 Gwei.
Looking forward, the BNB Chain ecosystem remains geared towards expanding DeFi, but it also has a comprehensive growth strategy to grow in other sectors. Despite the regulatory challenges presented in Q2, BNB Chain looks to remain competitive, continue its growth strategies, build community, and pursue its robust plans for 2023.
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James believes that the future of finance and economics will be algorithmic, decentralized, and distributed efficiently on a global scale. He is a Research Analyst with Messari focusing on Layer-1 protocols and previously held traditional finance positions at Northwestern Mutual and U.S. Bank. James also has experience as an analyst at research firms like Morningstar.
About the author
James believes that the future of finance and economics will be algorithmic, decentralized, and distributed efficiently on a global scale. He is a Research Analyst with Messari focusing on Layer-1 protocols and previously held traditional finance positions at Northwestern Mutual and U.S. Bank. James also has experience as an analyst at research firms like Morningstar.