Binance Coin Quick Facts

Founders: Changpeng Zhao, He Yi

Date Founded: September 2020

Current Developers: Binance Labs 

Max Supply: 200 million BNB

Pre-mined Supply (coins that were created before the currency was publicly launched): 100 million BNB

Practical Islamic Finance Rating: Uncomfortable 

Intended Purpose

Binance Coin is a utility token that runs parallel with the Binance exchange ecosystem. It serves as the main currency to transact with on Binance and has many complimentary features that drive up its value.

Binance offers significantly lower fees on transactions that use their native token BNB, incentivizing users to trade with Binance Coin through their platform. 

20% of the overall transaction fees collected are bought back by Binance and burned until 50% of the overall supply is destroyed, the rest is used by Binance to grow the ecosystem.

As of late 2020, BNB became smart contract compatible with the release of the Binance Smart Chain, this converted the currency into a Proof of Staked Authority(PoSA) coin. 

This means there is a set amount of validators that are voted for based on the amount of BNB delegated to them; allowing BNB to operate at the quick speeds of a Proof of Authority system with the decentralization of a Proof of Stake system.  

Current Utility

BNB is one of the largest cryptocurrency by market cap, hosting the second-largest decentralized exchange, PancakeSwap, which by itself has a 1.9 billion dollar market cap.

Alongside its smart contract capabilities, Binance offers numerous programs and incentives to use BNB with their exchange. One of the most notable uses is the Binance Launchpad. This allows token holders to invest in brand-new coin launches using BNB.

Binance Coin’s other uses include:

  • Paying transaction fees
  • Trading for other cryptocurrencies
  • Futures and leverage Trading
  • Loans and capital lending
  • Staking
  • Swap farming
  • Angel investing
  • Payment processing

Practical Islamic Finance concludes:

BNB’s use as a utility token for the Binance exchange means there is a direct link between the token’s value and the popularity of the exchange’s services. 

One could argue that owning BNB is akin to owning equity in Binance itself. In fact, Binance used BNB to raise capital and it currently relies on its price appreciation to gain value for the company.

Put differently, the coin relies on Binance to operate and vice versa.

Is Binance Coin Linked to Interest-Bearing Debt?

Since Binance is not technically a public company, they do not have to disclose audited financial statements

That said, based on the services that Binance offers, it is safe to assume that a material portion of their revenue comes from interest-based lending and al-maisir (by virtue of offering derivatives and futures trading).

Practical Islamic Finance concludes:

Binance Coin is inherently linked to the Binance exchange and by extension, the interest-bearing debt and al-maisir products the Binance exchange offers.

What is Binance Coin’s ESG Rating?

Governance refers to the incentive structures governing a cryptocurrency.

Decentralization

Generally speaking, decentralization makes it difficult, and sometimes impossible, for a corrupting force to affect all points of influence simultaneously.

To determine Binance Coin’s level of decentralization, we look at three different metrics: validators, distribution of staking, and distribution of funds.

Validator Nodes

A node is a computer connected to the network that holds the blockchain data for others to be able to use and download. This typically requires that all the blocks ever produced be downloaded. 

Binance has four different types of nodes: Validator Nodes, Witness Nodes, Accelerated Nodes, and Full Nodes. If you want to read more about these different nodes you can find more information here. 

Binance Coin has 21 validator nodes as of February 2022. According to their whitepaper, they plan to increase this number in the future.

Distribution of Funds

Currently, the largest holder of Binance Coin is Binance’s wrapped BNB wallet with 5.4 million BNB which is about 23% of the total circulating supply, followed by an unnamed wallet holding 4.5 million BNB or 19.74%.

The remaining 153 million BNB is in the “BSC: Tokenhub” wallet which represents all of the wrapped BNB that exists on other chains. These cannot be accounted for on the Binance chain itself.

Distribution of Staking

Binance Coin only has 21 validators that can produce blocks through staking.  

Each node has around the same amount of coins delegated to it which amounts to around 800 thousand each.

Environmental

Binance Coin uses a Proof of Staked Authority system that uses only required computations. One of the main reasons why Binance switched over to this consensus mechanism was to reduce the overall environmental footprint while increasing the network’s speed.

Social

Binance Coin offers another alternative to the Ethereum ecosystem and is built to be compatible with the Ethereum Virtual machine. It has brought unique value to the space, by finding creative ways to add value to a token beyond smart contracts and simple transactions.

Practical Islamic Finance concludes:

Overall we find Binance Coin’s ESG impact to be acceptable but note the lack of decentralization which is a break from the spirit of cryptocurrencies and blockchains.

Comfort Rating

From Binance Coin’s intended purpose, reliance on riba, and ESG impact, Practical Islamic Finance rates this cryptocurrency as:

Uncomfortable to invest in from a Halal perspective.

Justification for our rating:

It is hard to separate the Binance coin from the Binance exchange. Without the Binance exchange, the coin has no value. Therefore, the results of investing in Binance coin are determined by the success of the Binance exchange which itself has many products that are not sharia compliant. While there are no financial statements of Binance that we can audit, we suspect the percentage of services provided by the exchange that are not sharia-compliant to be material.

Consequently, we are uncomfortable investing in Binance Coin from a halal perspective. 

Note, we are not saying if you use Binance Coin for a specific utility on the Binance exchange that we think this is haram. Rather, we are saying that, for us, investing in Binance Coin for the purposes of profiting from its price appreciation is something we are uncomfortable with.

Sources

BNB Coin Market Cap

BNB Whitepaper

BSC Whitepaper

Binance On-Chain Data

Binance Node Information

Authors