The following excerpt is taken from the Eat Sleep Crypto daily newsletter.
We’ll be releasing the full Investor Series #5 – Binance Coin article and valuation model exclusively to subscribers this weekend.
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How Binance’s DEX Affects BNB
The Binance exchange has proposed a DEX (decentralized exchange) which uses the BNB token.
Currently, BNB gets its value as a trading pair which gives a discount on trading fees.
In the future, these tokens will get their value from two things:
- Use as collateral in the decentralized exchange’s Proof-of-Stake consensus
- Use as a trading pair on the exchange.
Because Binance Coin is correlated with Binance’s returns much like a share of stock would be, many people think it should be valued this way.
Attempts to do this are overly complex, and frequently convoluted. BNB is better modeled as a cryptocurrency.
In fact, it fits into our go-to cryptocurrency valuation metrics quite well.
The difference between BNB and most other cryptocurrencies is that in practice, BNB mostly appreciates from a decrease in supply rather than an increase in demand.
We factor this in when dividing M from the equation of exchange by the circulating supply of the coin.
If circulating supply decreases while M, the value of the monetary base remains constant, the price per coin goes up – more coins, lower price; less coins, higher price.
This was the first half of an email we sent to subscribers this earlier this week.
Want to read the rest?
It will be included in the BNB valuation model and article we release this weekend exclusively for subscribers.
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