Who Stands to Win From Binance's Woes?
The Battle for Coin Diversity in the West
|Cochran.io||Aug 25, 2019|
What’s the Problem for Binance?
Earlier this year, Binance announced that they would no longer be able to serve US customers on the Binance exchange, and would suspend US accounts as of September 12th.
While Binance has been scurrying to get a US service live under Binance.us, (which they claim is run in partnership with BAM Trading, which seems to simply be a Binance holding company) there are some serious shortcomings.
Binance tore to fame early on in the crypto space for a few core reasons:
It was one of the first major exchanges to have a strong presence in both Asia and the West.
It has minimal/no KYC for low volume users.
It has a large variety of tokens, coins and trading pairs available.
It was one of the first exchanges to offer an “Exchange Token” that users could share in the profit of the exchange.
Many of these features are simply not possible for an exchange hosted in the US - and many Asian exchanges who offer these features simply don’t care. When the US tells them that they cannot offer these types of services to US customers, the exchange either a) decides their small number of US users aren’t worth it and block the US users or b) decide they have very little US exposure and ignore the US.
On the other hand, Binance has a high level of US exposure including bank accounts, employees and investments; and, the US has shown it’s willing to really flex it’s judicial reach in order to protect US customers, as recently a Judge Ruled New York State has sufficient jurisdiction over Bitfinex in the on going legal battle for that exchange.
Binance knows that US customers represent 15% of their traffic, and likely a larger portion of their buying power. They been clambering to put together US operations, but, so far there are a few red flags:
So far, there is no confirmation of BNB profit from the US operation being part of the BNB buyback.
With US users representing 15% of BNB users, we can expect at least a 15% drop in volume on Binance, and in turn BNB.
We’re less than 2 weeks away from the cut off date for US users, and Binance US has not yet launched. If users have a lag time between being able to access Binance and the launch of Binance US, they are more likely to search for alternatives.
One of Binance’s top values is their diversity of assets. They list 164 unique assets. For Binance US, they are currently exploring 30 different assets some of which (like BNB) are clearly securities under US regulation which will not be listed.
This September will likely be a major blow to Binance and BNB, a sudden 15% drop may seem trivial to those of us in crypto - but, we’re talking about Binance losing 15% of their revenue, marketcap and trade volume. Which will fundamentally impact their business.
So Who Stands to Gain?
Some pundits in the space have suggested that this will be a huge win for Coinbase, but, that simply doesn’t fit with the user type we’re discussing.
These US users have always had access to Coinbase, and buying crypto on Coinbase would be sufficiently easier for them than getting money into Binance. They chose to use Binance because it offered them something different than what Coinbase was capable of offering - and that hasn’t changed.
The way I see it there are two categories of possible entities set to gain from Binance’s folly. "The Main Contenders" and possibly "The Longshots" - here’s our lists:
The Main Contenders:
Why These Exchanges?
KuCoin has been aggressive on their marketing to Binance users, including multiple promotions offering deposit bonuses.
Unlike other Asian exchanges, KuCoin has almost no corporate footprint in the reach of the US, and so they’ve decided to ignore US policy and still allow US users.
They have their own exchange token (KCS), and in the past 3 months have implemented lots of revenue features for it, including:
30% bonus buybacks
50% yield staking lock-up.
KuCoinPlay Airdrop platform.
This has lead to a 3.25x increase in the value of their token in the past 6-months, making it one of the best performing tokens in this sideways market.
They also offering a large variety of over 206 assets, putting them as one of the top exchanges in terms of diversity.
While they are currently behind Huobi in terms of growth and token value, Huobi also recently announced that users would have to use their Huobi US website which has limited offerings.
Therefore, in terms of who is most likely to pick up heavy value from Binance closing, we think KuCoin is likely to be the top contender.
For most people, Huobi would seem like a no brainer to scoop up the traffic from Binance. It’s had more growth, has more assets, and higher-volume than competitors like KuCoin.
The problem is, that Huobi also caved to US pressure and banned US users from trading. However, when this announcement came about, they instantly split their platform out into Huobi Global and HBG (US) to allow US customers trading right away.
Huobi’s HBH, formally run by their US holding company "HBUS" does lack a lot of the useful features we see in their Huobi Global offering, and only offers about 20 different US approved assets.
But, there are a few things that I think put them in the running:
They are already live. Users will switch to them in the gap before Binance US launches and Binance will have to come up with unique features to win them back.
The profits from HBUS are being used to burn the Huobi Token ("HT") and while US customers can’t buy HT on HBUS, global customers who do hold HT are pointing US customers to use HBUS creating a very powerful army of promoters for Huobi.
HBUS has launched the most aggressive referral program in the space, offering $50 UDST + 30% commission on referrals to HBUS. Knowing how powerful of a driver Coinbase’s $10 referral program was, HBUS is sure to clean up as US users look for a new place to hang their hats.
Beaxy is in an interesting position. The new exchange is fresh off a fundraising round, and has built one of the top trading engines in terms of latency, but, more importantly, they’ve set up an interesting legal structure that they believe allows them to service US and international customers on the same platform, even while having a native BXY token.
The BXY token is eligible for fee reduction staking, revenue sharing rewards, and buy-backs. BXY is also the only US eligible exchange right now to be listing recent IEO tokens, and allow them to be traded by US users.
While Beaxy currently has extremely low volume, and I don’t think it will a major contender long-term in the space, I do think it will be the next Cryptopia.
Love it or hate it, Cryptopia had its place in the market. While it was not a good exchange, or a secure exchange, it was the easiest place for users to list new assets, and it ended up offering more than 600 crypto assets at its peak.
While I never agreed with the asset listings of Cryptopia, I can’t deny it was insanely profitable. Cryptopia launched their CEFS shares at $400/share, during the bull run those peaked at nearly $14,000/share, a 35x return. The CEFS was also paying out a roughly 5.75% DAILY dividend on fees at its peak.
With Beaxy’s BXY token sitting at $0.03/BXY right now (40% down from their ICO price of $0.05) - it is one of only three exchanges that allow US users to exchange unique assets and so that makes it worthy of a long-shot spot on this list.
Singapore based COSS also makes the list of long-shots. They allow US customers, have hundreds of listed assets, support fiat deposits and trading, and have a native token that pays out a revenue-share via contract.
COSS has seen their share of ups and downs, going from the darling of the last bull-run to struggling to barely do $1M/day in volume.
Recently, COSS has rebuilt their engine, partnered with market makers, and held a merger with another exchange and wallet company to dramatically advance their footprint. This coupelled with the launch of their new IEO platform has helped them grow their volume 6x in the last 6-months of a relatively sideways market.
The FSA (fee-split-allocation) from COSS’ "COS" token is currently returning a comfortable 7% annual yield and still has lots of room for growth.
I think due to COSS’ wide number of assets, IEO platform and fiat gateways, they could scoop up a significant number of US customers. They’re an example of a startup who has been doing everything right, but, still struggling to grow. They’re just waiting on their moment, and the Binance shutting off US users could be that time.
Last, but not least, is decentralized darling IDEX.
Being decentralized, they’ve been quick to bring tokens to market and offer more than 500 token pairs - as well as a staking rewards program that allow users to not pay fees or to earn dividends (in ETH) from the profits of IDEX.
IDEX faces two big challenges. The first being, they recently introduced KYC/AML policies. While it is a bit of a grey area in most jurisdictions, it doesn’t seem like IDEX was legally compelled to make this decision. Many of their core users like to use decentralized exchanges explicitly due to the lack of KYC/AML and so this has hurt the exchanges volume.
The other challenge they face is the fact they are a decentralized exchange. This results in higher trade fees, more complicated trading interfaces/steps, and prevents them from capitalizing on bull-runs if they bog down the market.
IDEX therefore just slips into the long-shot list at the very back of the pack. I think IDEX can have a shot if they begin to attract a small volume of users looking for diverse assets/staking rewards, but, the bull run doesn’t hit before ETH2 or some other Layer2 scaling solution is launched to handle high network throughput.