Enter Changpeng Zhao AKA CZ. The debate around Web3 that Jack Dorsey started keeps raging on. Crypto Twitter is burning with hot takes and killer responses. And it’s time for Binance’s CEO to enter the ring. He does it in a roundabout way, by defending the idea of entrepreneurs creating new coins. In fact, one could argue that he’s not talking about the subject Dorsey brought up. However, the issuance of coins is a crucial part of Web3. And then, there’s the title.
The “One Coin to Rule Them All? Or Millions of Coins?” article clearly goes to the root of the debate. Is Bitcoin the chosen one or are we going to live in a multi-blockchain environment? Obviously, CZ is biased towards millions of coins. His Binance empire depends on trading; and the more coins there are, the more transactions. But that’s beside the point, the real question is, can CZ make the case for coin creation? Let’s see what the man has to say.
CZ Uses BNB As An ExampleWrite about what you know, people say. Right from the gate, CZ uses Binance as his use case.
“If you look at BNB, it raised $15m USD equivalent in bitcoin at the ICO, while that is a fantastic raise for a project at such an early stage, today, the total market cap of BNB is $90 billion USD, about 3000x.”
Whatever camp you’re on, the facts are the facts. CZ and his team created one of the most successful cryptocurrencies of the last few years with BNB. However, that coin is a very special case. They created it to be the native coin of the Binance ecosystem.
Binance is not only the biggest exchange in the world; it also has the most activities, features, things to do. BNB powers all of that. How many coins support that huge of an ecosystem? How many coins have that many use cases? And yes, BNB provides its user with superpowers while in the Binance ecosystem and helps them save money. How many other coins can do something similar?
BNB price chart on Eightcap | Source: BNB/USD on TradingView.com The Coins The Team Retains Are Good. Or Are They?This is the most confusing part of the article. On the one hand, CZ claims it’s good to reward the team with coins:
“The second small benefit is the coins the project team retains. In the case of BNB, the team allocation was about 40% of the coins, which is now worth $45 billion USD. While this sounds like a real sum, I’d dare say it is still just a small portion of the value you get from issuing a coin.”
But then, CZ claims that, in BNB’s case, the team will burn those $45B:
“Note, the team allocation of BNB was and will never be distributed to any members on the team. The team has committed to burning them all, which makes BNB a fair launch coin, i.e. the team did not keep any tokens for themselves. All the BNB our team gets will be earned through providing our services.”
So, which is it CZ? Did someone proofread this article? In any case, he keeps talking to entrepreneurs about “the value you get from issuing a coin.” That’s not what the discussion is about. Evidently, creating money out of thin air benefits the one who does it. The discussion is about users and if investing in these coins benefits them or puts them at risk.
What About The Users?“The real benefit of issuing a coin is it creates a whole new ecosystem, from user interactions to user retention, and development of the ecosystem.” Is that a benefit for the user, CZ? He claims that in the traditional model, “money flows one way only. From users to company to shareholders.” In the case of tokens, the users hold them, so:
“When the price goes up, the token holders, your users, benefit. Thus, they are incentivized to use your platform more and get more friends onto your platform. They become your best salespeople.”
Ok, that’s a benefit to users, but… isn’t CZ describing… a pyramid scheme here? Maybe he isn’t, but, he’s definitely still talking to entrepreneurs and entrepreneurs only. “It creates a positive virtuous cycle, a very sticky ecosystem.”
“You can’t do this even with bitcoin. You have to create a new token for your platform or ecosystem, otherwise, you can’t create a symbiotic growth environment with your users.”
In the case of BNB, you could argue the growth is symbiotic. Many users made and continue making a lot of money with BNB. How many coins are tied to a multi-million dollar endeavor, though? What’s the risk to users buying into projects that don’t even have a product?
And what about seignorage? The cost of creating a coin tends to zero, and the profits it produces could be tremendous. Isn’t that too much of a temptation?
And, aren’t most of those tokens unregistered securities?
What if they get regulated or prohibited? Where does that leave the user?
To Be Fair, CZ Does Say You Need A Product FirstEven if this article is for entrepreneurs, it should’ve taken the users into account. Because that’s where the debate is, user’s rights. However, credit where credit’s due, CZ did give this solid advice:
“I advise you to not create a token until you have product-market-fit. Tokens should be an acceleration mechanism, AFTER you have built a product that people want. Once you issue a token, it becomes harder to pivot your business. You have to get consent from your community. So, it is not ideal for trials, MVPs (minimum viable product), or the experimental stages.”
How many entrepreneurs will take CZ’s recommendations, though?
Featured Image by Josh Appel on Unsplash - Charts by TradingView
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