Binance is Blitzscaling
Earlier this year we published Analysis and Valuation") an analysis on Binance and Binance Coin ($BNB), which was the culmination of several months of research and diligence. Since then, we’ve carefully watched as the company has continued to grow at an astonishing pace. To the casual observer, it’s easiest to explain Binance’s rapid growth using Reid Hoffman’s words in Blitzscaling:
“When a market is up for grabs, the risk isn’t inefficiency—the risk is playing it too safe. If you win, efficiency isn’t that important; if you lose, efficiency is completely irrelevant. Over the years, many have criticized Amazon for its risky strategy of consuming capital without delivering consistent profits, but Amazon is probably glad that its “inefficiency” helped it win several key markets—online retail, ebooks, and cloud computing, to name just a few.
When you blitzscale, you deliberately make decisions and commit to them even though your confidence level is substantially lower than 100 percent. You accept the risk of making the wrong decision and willingly pay the cost of significant operating inefficiencies in exchange for the ability to move faster. These risks and costs are acceptable because the risk and cost of being too slow is even greater.”
Reid Hoffman, Founder and former CEO of Linkedin. Blitzscaling (pp. 24-25).
Binance is executing more aggressively than any other business in the blockchain industry. As a proof point, in Q3 alone, Binance launched 12 major products/initiatives in quick succession, outpacing the development of all of the other “Real 10” exchanges (Coinbase, Kraken, Bitfinex, Poloniex, Bittrex, Gemini, Bitstamp, itBit, and bitFlyer) combined.
While each of these products and initiatives have been significant on their own, no one to date has zoomed out and put the pieces together. Binance is strategically building something much bigger than a crypto exchange: they are building the future of finance. We believe the market has yet to fully understand the objectives of this strategy. Binance is not just an exchange anymore, and it’s well on its way to not being just a company either.
Binance is competing to be the centerpiece in a global, open financial system. Historically just a spot crypto exchange, Binance now offers futures, margin, lending, and options in one ecosystem—and will continue to grow into many of the products currently served by the legacy financial system. While the breadth of products offered by Binance is already unparalleled, they’re only just beginning.
This strategy has successfully produced novel and unique cross-selling capabilities that no other entity can match. For instance, Binance will allow traders to utilize the balances held in their Binance accounts to maintain collateral requirements across futures, options, and margin trading. In addition to that, Binance now automatically stakes their users’ assets on their behalf and distributes the yield back to them. This incentivizes users to keep assets custodied on Binance and unlocks the ability to quickly trade those assets without the need to unstake them and send to an exchange. This drives more liquidity on the Binance exchange and more assets custodied with Binance, which in turn drives greater network effects.
By combining staking, cross-margining, its own blockchain based DEX, and a native ecosystem token, Binance is creating new kinds of network effects that have never before existed.
Kyle recently explored some of the future open finance products that exchanges are poised to launch in Exchanges are Open Finance. As he talked about in that post (pause here to read that post if you haven’t already), it’s reasonable to expect Binance to offer interest-bearing deposit accounts, payment channels (including credit/debit cards), and other services offered by the legacy banking system.
The internet and modern consumer behavior is driving a rebundling of the financial services stack. Viewed through this lens, Binance is actually competing with robo advisors like Betterment, remittance companies like TransferWise, and stock brokerages like Robinhood to become the neo-bank of the future. Even companies like Uber are throwing their hat into the ring.
These neo-banks will use the credibility they earned in a narrow financial service to expand into high-margin services that are core to legacy banks, such as deposit accounts and payment solutions.
Due to the strong returns to scale for financial services, we expect the largest future neo-bank to be designed to serve as broad a market as possible. Being able to operate internationally on censorship-resistant payment rails vastly expands Binance’s market and gives them an enormous competitive advantage over the other neo-banks.
Binance is not just blitzscaling into the crypto exchanges market, but rather the entire global neo-banking market.
In our follow-on report on Binance, we explore the company's dominance of crypto markets and how they are expanding their product offerings. We also discuss the value capture of BNB, the competitive landscape of crypto exchanges, and why we believe BNB is sharply undervalued at current prices.
Download the report (PDF) now to read our analysis of Binance.
Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post may contain links to third-party websites (“External Websites”). The existence of any such link does not constitute an endorsement of such websites, the content of the websites, or the operators of the websites. These links are provided solely as a convenience to you and not as an endorsement by us of the content on such External Websites. The content of such External Websites is developed and provided by others and Multicoin takes no responsibility for any content therein. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.
The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/. Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure. * This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.*
Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.