Disclosure: Multicoin has established, maintains and enforces written policies and procedures reasonably designed to identify and effectively manage conflicts of interest related to its investment activities. Multicoin Capital abides by a “No Trade Policy” for the assets listed in this report for 3 days (“No Trade Period”) following its public release. At the time of publication, Multicoin Capital owns BNB tokens.

Earlier this year we published 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.