What is the true value of the Binance token?
I am making some numbers up regarding number of users, daily transactions per user, average transaction size. Don't get hand up on the numbers they do not matter but to illustrate a point which is the quiz at the end.
Active users: 5,000,000
number of user transactions per day: 2
Average transaction size: $2,000
Total daily volume = 5,000,000 x 2 x 2,000 = $20,000,000,000
Because you have the Binance coin you pay .05% commission on trades (1/2 of what you would pay otherwise) .
Total daily commission = $20,000,000,000 x .05% = $10,000,000
You pay those commissions with the Binance tokens in your account. At the current market rate of $8 per token, Binance collects about 1,250,000 BNB tokens a day.
Assume they don't sell right back and a 100,000,000 token supply. They would own all the tokens in circulation in about 80 days (100,000,000/ 1,250,000).
At the 80th day assume that got all the tokens back and take is out of circulation. The one token left is the one you own!
The value of your coin is?
A) $800,000,000 (current valuation)
B)$ 10,000,000,000 (Because now your coin is very scarce)
C) $8 ( A coin, is a coin, is a coin )
D) Pick a number (From a user perspective it doesn't matter if the price is $.001 or $1,000. more on that below. And this is why it is very risky to hold a Binance token as an investment .)
E) $0, zilch, zero, nada. (Because it the discount phases out in 5 years and many more tokens than people have use for, well...)
Why the price doesn't matter? As a user the value I get from a Binance token is that it gives me a discount on the commissions I have to pay for a trade. If I want to make a $10,000 trade (to buy Bitcoin for example) I have the option to pay $10 Dollars commission or $5 Dollars equivalent of Binance token. (50% discount) The rational economic decision is to pay $5 Dollars equivalent of Binance token. So, you go to the market and buy $5 Dollars worth of Binance token and deposit those tokens in your account. you can now make your $10,000 trade and use those $5 dollars worth of Binance token you just aquired to pay for your trade. Congratulations you saved 50%. But again why the price of the Binance token does not matter? Because when I buy $5 Dollars worth of Binance token, it doesn't not matter if I buy one token for $5, 2 tokens for $2.50 of 1/2 token for $10. What matters is that I get $5 dollars worth of tokens, because that's how much I have to pay in commissions for the trade that I actually want to make. That has very important consequences. First, is the obvious one that for a user, the value of the token does not matter which also means that there is no intrinsic value in the token ( I am just buying it so I can get a discount because Binance is forcing me to). Second, I should not hold those $5 Dollars worth of Binance token for one second longer than what I need it for, because it carries exchange risk. What is that? I am buying $5 Dollars worth of Binance token to pay a commission, but if I wait 10 minutes to make my primary $10,000 trade, the price of my Binance token might have gone up or down, so the minute I buy those tokens I have to execute my transaction right away to make sure I have the right amount I need to pay for the commission. In summary, the token carries no value other than the utility it provides to get a commission discount, and for that purpose I only need to hold it for a few seconds. The longer you hold the more risk you incur, it is not a value creating asset, it is only a method of payment with no intrinsic value.
Now you don't have to wonder why Vitalik Buterin is saying that cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.
Here is the reality:
Binance does not need a coin to give you a cash back, a refund, or a discount. For once they can could do it in Ether, Bitcoin, NEO, a platform token of their choice or wait for it...FIAT currency. Second, if there was any value to tokenizing a cash back discount every bank, credit card issuer and financial institution would have done it. Why don't they do it? because it is horrible for the customer.
First of all it adds a layer of complexity:
I get cash back on my bank, the give me the choice of points to spend on products or actual dollars. I don't have to buy a token to get it, and I don't want one, if they made me get one, I would go to another bank. Why would I buy a token and have exchange rate risk just to get cash back? Do it based on the volume of my transactions or my account balance. Point is, the token adds no value to the user experience, and Binance could provide a similar discount in many other ways.
Second: the token is just a method of payment, it has no intrinsic value. The only value is that it gives you a discount . But, as stated above, a token is not necessary for that purpose and adds no value to the process. Worse yet, the value is minimized because of the exchange risk we just discussed ( the value of the Binance token in your account fluctuates so that discount that you were going to get because you own BNB can go Puff!)
Third: The discount program phases out in 5 years, so there is a decreased utility on the token. Now, I am sure they will replace it with some perks, but that still has no intrinsic value.
Fourth: the highest the price of the token the less people will use it for it's intended purpose and will hold for speculation. meaning is a purely speculative asset.
Fifth: This goes to most utility tokens issued by for profit companies. Ownership of the token gives you no rights or claims to the company profits, it is not like owning shares of a stock. It has no financial value.
Sixth: You do not need the token to use the platform.
Could Binance token be valuable? Abosolutelly, if it was a security token under a different set up. Binance the company is worth Billions, so securitizing the revenue would be very valuable as well. If, when you trade at Binance, everyone had to pay a .1% commission to trade independently if they owned a token or not, and the agreement between Binance and the token holders were: " If you own a token you are entitled to a proportional half of the commission revenue of the platform". That would mean that if there is $1,000,000,000 in yearly commission revenues, assuming 100,000,000 tokens supply,each token owner would be entitled to $5 in profits a year, and the more people trade on Binance the more profitable that token becomes. That my friends, has real value. But that is not a utility token, that's a security token. What Binance does Instead is say that it doesn't matter if you hold one token or 1,000,000 tokens, you only get a discount on your individual trades (Holding more tokens that what you absolutely need does not benefit you)...so at best what they did was make you prepay for all your future trades.
Also please be careful with the argument that the Dollar also doesn't have any value, that is just backed by the full faith and credit of the United States, as if the value of the dollar was not determined by the real economic output of the United States measured in terms of GDP, trade balances, interest rate, productivity and a number or real measures compared to the other global currencies. Even if it was true that the Dollar has no value that is no an argument to crate value for any token, much to the contrary. A Binance coin is not backed by the companies profits or any financial measure. It's a smart marketing ploy based on a tokenized cash back program with an expiration date.
Now replace the name Binance and put most of the non-platform tokens here. mostly the new ICO's from for profit companies issued in the last 6 months and tell me where the value is in owning any of them.
If you disagree I would love to hear how you value Binance or another coin in a way that creates true financial value for an investor.
Just for fun here is the disclaimer of the Bloom token ICO ( and with Bloom you at least need the token to use the services):
"Ownership of BLT carries no rights, whether express or implied, other than a limited potential future right or expectation to use and interact with the Bloom platform as may be made available from time to time, if and to the extent the Bloom platform is successfully developed and deployed. Any potential future right or expectation relating to the provision and receipt of services on the Bloom platform shall be subject to any restrictions and limitations set out in the T&Cs and any Bloom platform terms (as applicable).
You acknowledge and accept that BLT do not represent or constitute:
a) any ownership right or stake, share, equity, security, commodity, bond, debt instrument or any other financial instrument or investment carrying equivalent rights;
b) any right to receive future revenues, shares or any other form of participation or governance right from, in or relating to Company, and/or the Bloom Platform ;
c) any form of money or legal tender in any jurisdiction, nor do they constitute any representation of money (including electronic money); or
d) the provision of any goods and/or services as at the date that these T&Cs form a binding agreement between the Parties. "
Not every token is a blockchain project, not every token can be Bitcoin and seen as a store of value, not every token is needed or even preferable for running a project.
ICO's are a cheap (free) way to finance a project and because of that everyone that can do one will do one until there is regulation in this market. See my last post about that here: https://steemit.com/ico/@gradwohl/this-is-why-ico-s-are-destroying-the-crypto-space-and-slowing-the-progress-of-real-blockchain-technology" target="_blank" rel="noreferrer noopener
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