On 31 January 2019, Picolo Research released a Revised Secondary Token Research Report on BNB. View the full report here.

Company Overview

Binance started in Jul 2017 and is an exchange platform for crypto to crypto transactions. It is one of the largest exchanges by trading volume, serving over 350 token pairs for trading. The exchange boasts a matching engine that can perform 1.4m transactions per second (TPS) and is known for its high liquidity. Behind the platform is a professional team of 400+ employees with an influential CEO Zhao Changpeng at its helm.

Binance is primarily an altcoin focused exchange, differentiating itself from Coinbase, BitMEX and Bitforex. The platform averages $1b trading volume per day has over 9m userbase worldwide, and recently surpass Deutsche bank profits in Q1. The platform also announced a $1b social impact fund to foster the growth of blockchain industry and is continually innovating together with its community.

Updates from the previous report (Sep 2018)

Picolo Research reviewed our valuation on Binance and had adjusted several parameters to reflect current market conditions. The adjustments caused a change in our target price, however, upside potential persist. Here are the significant changes from the previous report.

The revival of Binance Launchpad providing additional utility value to BNB tokens, resulting in greater adoption and demand

Overall trading volumes have dropped significantly (~50%) since prior report, hence growth rate of volumes have been adjusted

Adjusted discount factor to reflect Binance as a stage 3 growth startup

An increase of MV/Vol multiple across major exchanges from 3.28 to 3.67, increasing relative valuation in this sector

Thematic Views

Greater adoption of BNB tokens spearhead by Launchpad traction. Binance has gained a significant foothold in the digital asset exchange sector since its inception. The platform has developed itself as one of the major players in the crypto to crypto exchange sector and has built a strong brand name in both the demand and supply side, naming it as one of the most sought-after exchanges for listing. One of its affiliated platforms, Launchpad (a token issuance platform), was highly underutilised for the entire 2018, with the last token issuance (BRD) happening on 26 Dec 2017. However, this had since changed when Binance began 2019 with a promise to launch a new token every month starting with BitTorrent and Fetch.AI. The former, BitTorrent Token (BTT) issuance was scheduled on 28 Jan 2019 where participants were able to purchase BTT with both BNB and TRX. This project was a huge success as it was sold out in minutes. BNB tokens also gained 17% in value over this period when Binance announced BTT’s sale. Therefore, Launchpad exhibits the potential to drive additional demand for BNB tokens as it creates additional utility value to BNB for its 10 million users worldwide.

Binance market share of BTC trading volume stabilises. Even though total market cap and trading volume dropped significantly in 2018, Binance has been consistently retaining the top 3 positions as an exchange with the most traded volume globally. Its market share of trading volume for BTC has increased from 25% to 32% with a peak of 47% in June 2018. We see Binance’s market share stabilising in the range of 30–40% despite an increasing number of exchanges being launched monthly.

Innovative drive to improve exchange features and product offerings. Binance has consistently been at the forefront of providing better user experience of their services. In 2018, the exchange revealed an MVP of its decentralised exchange (DEX) platform, which is a core component of their business strategy to provide a hybrid exchange ecosystem in 2019. In addition, the firm made its first acquisition in Trust Wallet to support its DEX platform. There are several other features that Binance had rolled out, which includes Binance Labs, Binance Info and Binance Academy, with the latest being a crypto-to-crypto over-the-counter (OTC) trading desk launched in Jan 2019.

Competitor Analysis

Valuation

Picolo had adjusted several parameters from the previous report to reflect bearish market conditions. The valuation methodology stays unchanged with a two-prong approach to the valuation of BNB. First, fundamental value is derived from token discounts and token repurchases that will occur going forward. We forecast an implied quarterly growth rate of 21.2% in trading volumes and utilise Nasdaq as a competitor to calculate an implied profit margin based on its operational costs. We further assume a quarterly discount factor of 6.8% (30% annualised), indicating an intrinsic valuation of $9.53.

Second, a relative valuation approach using a dataset of comparable exchanges was adopted to derive an average Market Value/Volume multiple (MV/Vol), estimating the token price at $10.64.

An average of the two valuation approaches was taken to derive a value of $10.08 per BNB token.