BNB Chain: Tokenomics

June 27, 2022

 

As of February 15, 2022, Binance chain and Binance Smart chain (BSC) were fused to form the BNB Chain. The transition joins the BSC’s connection with the BNB Token and the BNB ecosystem. The BNB chain comprises of two parts:

  • BNB Beacon Chain (previously Binance chain) – the beacon chain is used to carry out BNB Chain Governance (voting on proposals and staking)
  • BNB Smart Chain (previously known as Binance smart Chain) – used as an EVM Compatible consensus layer and connects to multi-chains.

The newly named BNB Chain is an EVM compatible chain that uses the Proof of Staked Authority consensus mechanism (PoSA) posed as a solution to bring programmability and interoperability to the Binance Chain. PoSA can be seen as a hybrid between Proof of Stake and Proof of Authority mechanism. Read more about PoSA here.

The BNB Chain relies on a network of 21 validators, via the PoSA system ensuring that the most bonded validator candidates of staking, become active validators and produce blocks.

In order to guarantee security, stability, and chain finality, BNB Chain uses double-sign detection and other slashing mechanisms similar to that found in other chains, but with a high degree of penalty, based on the small size of the validator set. In essence, BNB Chain combines EVM-compatibility and the fast transaction times of the PoSA to deliver a favorable interoperability solution.

The BNB Token

BNB Chain utilizes the $BNB token native to the Binance ecosystem. $BNB is used to pay for transaction fees, staking, asset transfers, and to run smart contracts. The $BNB token serves as a replacement for the Binance Token which was previously used by the network. The total supply for $BNB is calculated as the sum of total supply on the Beacon Chain (previously Binance Chain) and the Binance Smart Chain (previously known as BSC). It’s interesting to note that all $BNB tokens (200 million) had been pre-mined prior to public sale.

Breakdown of ecosystem-wide token allocation can be seen below:

The BNB Chain uses two separate types of tokens; BEP2 and BEP20.  Both are known as BNB however, the difference lies in their usage. The following section goes over the key differences and their use cases.

BEP2

The BEP2 token is considered to be a technical standard for the issuance and implementation of tokens on the Binance Chain (BNB Beacon Chain). BEP2 tokens can only be used as currency to pay for transactions and staking. The BEP2 standard sets out basic yet essential features of tokens issued on the Binance Chain. Despite having an underlying BEP2 layer, different tokens still have different use cases they are created for. BEP2 tokens can be traded on the Binance Dex, a decentralized exchange running on top of the Binance Chain and staked using the BSC Wallet.  BEP2 token are also supported by hardware wallets such as Ledger Nano X and Ledger Nano S.

Some notable functions:

  • Pay for trading fees on Binance Dex
  • Pay for Transaction fees
  • Pay for Goods and Services online and in-store
  • Staking and earning rewards and much more

BEP20

On the other hand we have BEP20, the token standard native for the BNB Smart Chain (previously known as the Binance Smart Chain (BSC). The BEP20 standard features similarities to the ERC20 standard on Ethereum and offers compatibility with the Ethereum smart contracts and is EVM compatible. These tokens were launched to provide a flexible format for developers to launch a range of different tokens. These could represent anything from shares in a business to dollars stored in a bank vault (i.e, a stable coin). Similar to BEP2, BEP20 is also fueled by BNB. This provides an incentive for validators to include transactions in the blockchain and earn rewards as a result. In sum, BEP20 tokens are utility tokens on the BNB Chain ecosystem used to interact with smart contracts to build dApps etc.

The Founding Team: 

80 million (40% supply) accrued over the span of 4 years.

Angel Investors:

20 million BNB (10% of supply) immediate access; not vested.

Public Auction: 

100 million BNB (50% of supply) were all available for sale during the 2017 public sale. They were sold for 15 cents a piece.

The total circulating supply of the BNB Token can be seen below:

Source (Feb 2022)

BNB Token Burn

Binance schedules quarterly $BNB burns, to reduce the supply of $BNB, resulting in a value increase. Quarterly trading volume decides how much $BNB is burned every quarter. The quarterly burn schedule will continue until a total of 100,000,000 $BNB (50% of total supply) is destroyed. The calculation behind BNB burns can be found here.

Staking

Binance enables BNB holders to stake their tokens by placing them in a staking pool. From there you are able to delegate your tokens to a chosen validator. Elected validators hold the power to distribute their block rewards to the delegators. Block Rewards are not immediately sent to validators, instead are accumulated on a rewards contract that automatically distributes rewards every day at 00:00 UTC. More on rewards below.

Note: Staking (token bond, delegation, and records) for the BNB chain occurs on the BNB Beacon chain as mentioned above. 

Where to Stake? 

Currently, the BNB token staking is supported by Binance Wallet, Ledger, TrustWallet, Enjin etc. More details here.

Ready to Stake? 

Follow along our step by step staking guide here.

Rewards

The current rate of return for staked $BNB is 8.07%, and requires a lock-up time of 7 days. This means that once you unstake your delegated tokens, you will need to wait 7 days until you can withdraw your tokens plus any accrued rewards over this period.  It’s important to mention that no rewards are accrued during the 7 day unstaking period. A calculator to estimate rewards over a given timeframe can be found here.

Delegator rewards are derived from gas fees generated on the Binance network and then distributed to the Active Validator Set. Validators are then responsible for distributing these rewards among delegators. Reward distribution happens on the chain every day at 00:00 UTC.

However, as mentioned in the staking section above, the distribution is not immediate. Rewards accrue on a rewards contract then are distributed to validators and passed on to delegators. Each delegator will receive a return based on their delegations on the network.

Fees

The following fees contribute towards reward accumulation:

  • Deposit and Withdrawal fees

Currently Binance does not charge deposit fees. For each withdrawal, the user pays a flat fee to cover transaction costs of transferring cryptocurrency out of their Binance Account. These rates are determined by the blockchain networks themselves and are open to fluctuations without notice. For exact rates at any given time check this chart here.

  • Trading fees

Besides withdrawal fees, Binance rewards are also derived from trading fees. These fees include Spot Trading, Margin Borrow Interest, Futures trading, Collateral Interest, Liquidity Swaps, and P2P transfers. A complete list and rates can be found here.

Governance

Governance is one of the primary functions of the BNB Beacon Chain. Users submit proposals and vote on topics such as network parameters, slashing quantities, cross-chain transfer fees, uptime, software updates etc. Voting power is defined proportionate to $BNB stake.

It is important to keep in mind that delegators can not individually vote and running a validator is the only way to have a vote in BNB governance (as such, delegating to Figment is tantamount to delegating your voting power to Figment’s governance participation) A proposal must be submitted with a 1,000 BNB deposit but if the proposal passe, the deposit is returned to the proposer. If, however, the proposal fails to pass, deposits are distributed to the validator set. The diagram below explains the process effectively:

 

Read more:

BNB Chain: Staking Guide

The BNB Token

Validator overview 

BNB Chain Governance 

Binance Staking

BNB Chain documentation 

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