Binance announced a new asset-backed token last week. Known as BTCB, it is backed by a reserve fund of Bitcoin (BTC) and will enable users to exchange the coin’s value on the Binance ecosystem.
Seems slightly crazy right? Maybe not. BTCB will be used for trading pairs on Binance’s decentralized exchange. The main appeal of Binance DEX is its ability to handle trades very efficiently, but there is a major stumbling block. Binance Chain, which powers the DEX, can only handle tokens that comply with Binance’s BEP-2 standard.
This means that Binance DEX can handle minor cryptocurrencies that conform to BEP-2, but it can’t handle more established cryptocurrencies, like Bitcoin.
Binance’s BTCB token bridges this gap: users can trade BTCB for other tokens on Binance DEX, then swap BTCB for regular Bitcoin on Binance’s main exchange. In other words, BTCB will give DEX users a far greater range of trading options.
Furthermore, BTCB is just one of many crypto-pegged tokens that Binance intends to introduce in the future, along with fiat-pegged stablecoins. These new offerings mean that Binance DEX users may have even more trading options very soon.
Binance’s new BTCB token is not a substitute for Binance Coin (BNB). Binance Coin is used in trading pairs on the main Binance website, and it can be used to pay for some in-exchange services.
By contrast, BTCB is strictly used for trading pairs on Binance DEX. By using BTCB, Binance believes, will introduce a greater selection of trading options and its DEX will see higher trading volumes and increased liquidity.
Has It Been Done Before?
Several other companies have also introduced similar Bitcoin-backed cryptocurrencies. BitGo launched Wrapped Bitcoin, or W-BTC, which brings Bitcoin-pegged tokens to Ethereum (ETH); Blockstream created Liquid Bitcoin, or L-BTC, which is part of the Liquid Network.
Binance’s Bitcoin-pegged token will be handled directly by its users. Since Binance is one of the biggest crypto exchanges in existence, BTCB could very well end-up in high demand.
Although Binance DEX is not nearly as active as Binance itself, it is still very popular: it currently has a daily trading volume of about $10 to 15 million. Binance has backed BTCB with 9001 BTC (~$100 million), enough to meet initial user demand.
Binance’s U.S. Presence
Binance’s announcement coincides with the news that the company will begin blocking American users from its main exchange. Instead, American investors will rely on a new partner exchange operated by BAM Trading Services, which will fully comply with U.S. regulations.
It is still unknown which tokens will be available on the U.S. version of Binance, and it’s possible Binance Coin and BTCB will not be among the American exchange’s offerings.
However, there is another reason to be optimistic: contrary to popular belief, American investors are still able to access Binance DEX. Although American users have been blocked from Binance.org, they can still access the DEX through wallets that support it and through VPNs.
Since the utility of BTCB rests heavily on Binance DEX, continuing to allow American investors access to the DEX in this way could be very important—even if the path to Binance’s DEX is somewhat byzantine.
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