1. Two-stage growth model of platform currency
The previous tweet mentioned that a big pitfall of exchange platform coins is not to be superstitious about PE. Behind this is the dividend growth model. We regard repurchase, dividends, new stock rights, and handling fee deductions as dividends. In theory, the valuation of exchange platform coins should be proportional to dividends. According to this valuation logic, the "three major" investment values in 2020 are HT＞BNB＞OKX.
But the result is obviously wrong, because only looking at PE is equivalent to using a one-stage valuation model, but in fact at least a two-stage model should be used, because in addition to current income, future growth rates will also play a decisive role. Of course, the cryptocurrency market has a typical bull-bear cycle, so the actual model will be more complicated, but in general, growth rate will play a decisive role in valuation and value return.
That is: the valuation of the platform currency depends on the current value capture ability + growth potential
2. The real driving force of platform coins in the bull market
So the next question is: what determines the growth rate? The answer is assets.
In my previous tweet, I mentioned that the best buying point for exchange-traded coins is the beginning of the bull market. Some people think this sentence is meaningless, but the beginning of the bull market here does not need to be so precise. This bull market does not refer to BTC at $6,000. To put it more directly, after BTC stabilizes at ATH, exchange-traded coins will have a good buying point.
The logic behind this is simple. The exchange's profits come from transactions and capital sinking, and the real explosion in transaction demand is often accompanied by an explosion in assets. When BTC rose from $10,000 to $30,000, the exchange could not make much money, because at this time transactions were still mainly limited to BTC, but the real trading volume came from the explosion of assets. In 2017, it was ICO, and in 2020-2021 it was DeFi Summer, Gamefi, and new public chains.
At this point, the success of BNB is not surprising, because in 2019-2020, Binance was ahead of the competition in the asset layer by at least one position. Specifically, there are two pillars: Binance Labs and BSC. If you have been paying attention to Binance's IEO since 2019, you will find that these projects are not illogical, but are interrelated and can form a network effect. The most typical sign is that I clearly remember that in one of Binance's IEOs that year, more than half of the officially announced partners were previous IEO projects. And this is just the beginning. During this period, Binance Labs gradually came on the stage (established in 2018).
At this point, the gears of fate have begun to turn, and IEO and Binance investment targets will become one of Binance’s greatest assets in the subsequent bull market.
Then came the DeFi Summer of 2020. Objectively speaking, almost all exchanges missed the first round of DeFi Summer to varying degrees, but Binance quickly launched BSC. The essence of the initial version of BSC was to carry the spillover of ETH demand at the time. At this time, most employees and even some executives of some friendly competitors did not even know how to use the on-chain wallets.
With the support of Binance Labs and BSC, BNB has achieved unprecedented success. Its essence is that the layout advantage at the asset level has been transformed into the right to issue assets in the bull market. The reason is simple: the best quality and most wealth-effect assets are first launched on BN or BN becomes the main trading disk. As a trader, how do you choose? As a project owner, how do you choose? Thus, the growth flywheel is realized:
More users, stronger wealth effect, and better assets
Among several other exchanges that can be compared here, FTX is relatively successful, and its implementation path is similar to Binance: Solana + Alameda/FTX Ventures; Huobi also relied on this strategy to achieve significant results, and even rivaled or even surpassed Binance at one time. BSC's momentum, but unfortunately for various reasons, was not satisfactory in the end; and OKX was obviously at a disadvantage at this stage.
As an aside, although there are many controversies in the market about Binance's investment and listing, from my personal experience, Binance Labs pays more attention to long-term value than short-term interests. Specifically, Binance Labs dares to lead the investment and is more willing to invest a larger share. On the contrary, it is relatively insensitive to valuations, which is exactly the opposite of many "VCs" who pursue low valuations, follow up small-size investments, and hope to unlock as soon as possible. In many cases, Binance labs will even take the initiative to ask the project party to extend the vesting period of investors' share tokens, including itself.
As for a certain exchange-related VC whose name I don’t want to disclose but whose founder has already joined, you may find that their investment targets do not perform well in the end. That’s because some projects enter the Pre-Seed round with very loose terms. I won’t go into details here, the difference is obvious.
3. Growth slowdown and regulatory pressure in the bear market
The second stage of the two-stage dividend growth model will enter a stable state, that is, high growth is bound to be unsustainable. There are many reasons: the base becomes larger, which leads to a slowdown in growth, management becomes more difficult, corporate efficiency deteriorates, and "dumping" against the top 1.
One extra point to mention here is the "impossible triangle" for exchanges. This theory was proposed by me when analyzing the on-chain gambling track, but there are also many gray areas in crypto exchanges, so this framework also applies. Simply put, exchanges have economies of scale. The larger the scale, the more nonlinear the value capture ability will be. If you choose compliance + scale, you will inevitably have to give up some profits. If you choose scale + profits, you will inevitably have to give up some compliance.
This is also the problem Binance is facing now. There may be many other exchanges whose compliance is not as good as BN, but their scale is not large enough, so they are subject to less regulatory pressure. In addition to regulatory pressure, we can also see that Binance is currently under some growth pressure. Rumors of layoffs, opening copy trading, and requiring some project parties to introduce merchants are all manifestations of growth pressure. Of course, these pressures will not fundamentally change Binance's fundamentals. This is just the inevitable product of a large enough scale + bear market + long-term offensive strategy.
4. Offensive and defensive strategies
In contrast to Binance’s offensive strategy, OKX is a typical representative of the “defensive strategy.” We can see that Binance has always emphasized “education” from investment to listing to operation, which is a manifestation of growth anxiety. Binance has already taken up as much of the stock market as possible. If it wants to maintain high growth, attracting traffic from outside the circle is the only way.
On the contrary, OKX has done the following in the past period of time:
(1) Few coins are listed
(2) A lot of costs have been paid in asset management: high-interest financial management subsidies, shark fins, and structured products. These products are all designed to attract existing users and existing assets.
(3) MPC wallet, AA wallet, NFT aggregation market, the integration of CeFi and the on-chain world, the purpose of these products is to allow users to remain in the OKX ecosystem under the trend of on-chainization.
Personally, I think this defensive strategy was very successful during the 2022-2023 bear market. OKX gained users and reputation. This success can also explain the price performance of OKB to a certain extent.
5. Return to the starting point: Is the platform currency worth hoarding?
If you ask me which exchange coins I am most optimistic about or which exchange coins have the best fundamentals, I can answer:
（1）BNB
Binance is facing strong regulatory pressure and high growth pressure, and BNBChain's recent performance is not satisfactory. However, BNB's fundamentals have not undergone a fundamental reversal. Binance still has a leading position, asset-level advantages, the strongest profitability, and the imagination space brought by opBNB and Greenfield.
（2）UN
OKX is one of the best performing exchanges in the bear market, especially its defensive strategy has achieved remarkable success, and this defensive strategy can also be switched to an offensive strategy when the bull market comes. Defense does not mean forever defense.
（3）German Civil Code
BGB is one of the few exchanges that still adheres to the offensive strategy in the bear market. In addition, BGB also has the horizontal ecological advantages of the original Bitkeep wallet, ForesightNews, and Forsights Ventures. (As an aside, Foresight Ventures is also one of the best Asian Crypto VCs in my opinion).
But if you ask me whether I have bought BNB/OKB/BGB, I can tell you very clearly: I have not bought any of them, and I don’t expect to buy any of them in the next period of time at the current price. Three reasons:
The valuation is indeed a bit high. The valuation method is invalid. An interesting thing is that for these three platform coins, because we don’t know the real circulation volume (excluding the part held by the founder and the platform), a typical view is that most of BNB was repurchased before the bull market, most of OKB was repurchased after the Shanxi incident, and BGB has maintained a high control status since its issuance. So for these three platform coins, any valuation model has completely failed. As mentioned at the beginning, platform coins do not directly benefit from the bear-bull conversion, but benefit from the asset explosion during the early and middle bull periods. The asset explosion is still far away from us now, and the window for getting on the train will not close immediately.
An anti-common sense view is: buying 200U of BNB now is not more cost-effective than chasing 800U of BNB in the next bull market, because you have to consider the profit and loss ratio and opportunity cost. What if the bull market lasts a long time? What if Binance has problems or is flipped during this period? What about the income from your other investments during this period, or even the loss avoidance EV caused by short positions?
As for other exchange coins, to be honest, I have used them less or know less about them, but I generally think that these exchange coins are not very good targets at this stage. Now is the middle of the liquidity drying up period, and it is also the most painful period for some exchanges that are not so profitable. Sometimes the surface data cannot ensure absolute safety, such as Dragonex and Fcoin in the last cycle. It is not a bad thing to sacrifice some potential gains in order to protect the principal.