Binance’s BNB token has surged more than 860% in the past month to attain the position of fourth-largest cryptocurrency by market cap. 

BNB has historically been offered by Binance as a utility token for discounted trading fees on their platform. However, with the release of Binance Smart Chain in September 2020, it has become a serious potential competitor with Ethereum in the DeFi space. 

PancakeSwap and Venus, both decentralized exchanges operating on the Binance smart chain, have rapidly increased their total value locked to $3.4B and $3.9B according to Defistation, respectively. In comparison, the far more established UniSwap and Aave stand at $4.4B and $3.4B, respectively.

The TVL on Binance Smart Chain illustrates a truly telling picture of which ecosystems users want to participate in, with almost the entirety of PancakeSwap’s and Venus’s capital entering in the past four months compared to Aave and UniSwap’s two+ years of operation in the space. 

From a development perspective, Binance Smart Chain is easily integrable with Ethereum projects (being a 100% EVM compatible blockchain). Thus, there is continued potential for ERC-20 based yield farming strategies to be easily implemented on BSC. 

With such a rapid increase in price for the token, many investors are skeptical of the token’s future price prospects. But the longer the Ethereum gas fees stay prohibitively high for the average user to perform swaps and farming, the more capital will flow from the Ethereum DeFi ecosystem to the Binance ecosystem – putting immense upward pressure on the price of BNB token.

BNB’s ~$0.20 fees for performing swaps on Pancake is far lower than the near-$50 needed for swaps and providing liquidity on UniSwap. BNB’s 40 billion vs. Ethereum’s 1$88 billion market cap may indicate that Binance’s token has much to still appreciate in price given that it achieves its goal of becoming a more viable alternative to Ethereum. 

However, BNB investors should be cautious of the developments of ETH 2.0, with much lower gas fees and less network congestion promised on the Ethereum website roadmap.

If ETH 2.0 is able to deliver on this promptly, Binance Coin could likely see a massive short-term decline in price in reaction, as ETH is still far more ingrained within the DeFi space both from a technical perspective and public knowledge.

The more centralized nature of BNB is also a possible cause for concern for the token, with Binance holding the majority of Binance tokens according to crypto data providers – and subsequently controlling the majority of the 21 validator nodes.

If government legislation or financial enforcement were to target Binance directly, Binance’s native token would likely decline from this month’s highs to multi-year lows seen in 2018.

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