Dear Binancians,
In my New Year message last year, I emphasized building foundations for the growth of the global crypto ecosystem for generations to come. In 2020, we worked hard to bring new products, improvements and developments to key ecosystem initiatives among our mission as an organization to increase financial inclusion globally and putting our users first.
The Crypto World After COVID-19
The COVID-19 pandemic has changed the way we live, negatively impacting the well-being of countless individuals and damaging the global economy.
In 2020, worldwide markets faced unprecedented volatility and instability in already-vulnerable economies and countries. With global economic uncertainties, inflation and traditional assets suffering due to the macroeconomic shock caused by COVID-19, people around the world have increasingly looked to bitcoin and crypto as an alternative asset and cross-border transactions in an unprecedented manner. This has driven the crypto market to new heights and poised bitcoin/crypto to enter the mainstream.
Last year, interest in crypto continued to rise amongst traditional investors, and corporate onboarding numbers continued to increase. In Q3 of last year, the number of institutional clients we onboarded was 60% higher than the number we added in the preceding quarter. The total number of institutional clients on Binance grew by 17% quarter-over-quarter, and since the end of 2019, it has gone up by 46%.
The pandemic also led to drastic macroeconomic changes, such as Quantitative Easing (QE) in almost all countries, which also drives people to crypto. I think as the new QE money flows into the global market, much of these will be converted into one form of cryptocurrency or another. This has corresponded with 2020’s booming crypto futures market that provide the necessary hedging and liquidity opportunities.
The longer term economic impacts of COVID are unknown. However, as we’re still in the midst of major economic disruptions and historic volatility, I believe bitcoin/crypto will continue to rise and be at the pinnacle of positive change.
Compliance
Compliance is a journey (not a destination) where responsible players are always working to meet new and changing standards and improving practices. We’re always on a journey to improve compliance.
Our industry is very new and innovative, so inherently, there are more regulations and guidelines needed and under development; similarly to how Google and Microsoft preserved during the .com boom. Also, cryptocurrencies cater to a global audience, and because this is such a cutting-edge sector, guidelines in most jurisdictions are still evolving. We believe ultimately everyone wants regulation that promotes innovation and an open market. We are optimistic about the increasing amount of regulatory frameworks and guidelines in progress around the world. I believe we will see more clarity on regulations in the next 12 months.
Our goal is to continue adhering to local rules and regulations, which allow us to protect and provide the best services to our users and bring greater adoption. In addition to the many regtech solutions we heavily invest in and compliance partners we work with, we will continue working closely with regulators and complying in the places where we operate as a global decentralized organization and helping to positively influence regulations that will benefit our industry. We hope to work with more local governments and policymakers in the new year and encourage them to reach out to us to work together.
Decentralized Finance (DeFi) and Binance Smart Chain
This year, we saw the rise of decentralized finance (DeFi) as a compelling use of blockchain technology to spread the freedom of money. Through DeFi, people are given new ways to participate in crypto-fueled financial products and benefit from their gains. The emergence of DeFi also drove more traffic to blockchain networks, and this brings a new set of challenges to developers, like higher network fees, congestion, and more.
To help solve this problem for the crypto community, we worked with the Binance Chain community to launch Binance Smart Chain (BSC) as our contribution to driving more innovation to decentralized solutions such as DeFi and other blockchain-related solutions. With BSC, we are offering a high-performance and low-fee blockchain network that’s compatible with the Ethereum Virtual Machine. Now, developers can worry less about costs and focus more on innovating.
I think the innovations around liquidity pools and AMM, especially for stablecoin trading, are very interesting. I believe this will stay. DEXs (decentralized exchanges) are also well fitted for listing small and less mature coins, which provides a good validation ground for larger CEXs (centralized exchanges) like Binance.
We have introduced many of these DeFi innovations already on Binance.com, such as interest- and yield-generating products in Binance Swap, Binance Earn, and more. We also created the Binance Innovation Zone specifically for listing newer coins, thus providing liquidity for DeFi tokens while protecting less-experienced traders from the risks in trading them.
In 2021, I believe we’ll see more convergence on the product offerings on the CeFi (centralized finance) front. But fundamentally, DeFi and CeFi are targeting different users. I hope both will help grow the industry. Whatever happens, we are ready to support and adopt any new DeFi innovations and trends.
Adoption: Crypto for Payments, Stablecoins, and More
Another important area for us is the continued growth and adoption of cryptocurrencies in the mainstream. Growth in crypto payments was one of the most obvious use cases we hoped to see more of in 2020, but it hasn’t taken off as strongly expected. This may be mainly due to the fact that existing fiat payment rails are pretty well-established and are quite hard to replace in one swift move.
A better strategy may be to latch onto existing fiat payment rails so that they can co-exist. Binance Card is one step in that direction. PayPal entering the market is great for user education and adoption. I believe it is hugely positive for the industry and something we’ll see continued growth in over the next 12 months.
I also believe we’ll see cross-border payments with stablecoins continue to increase next year. It is much easier and cheaper to make cross-border payments using stablecoins or with any cryptocurrency than traditional methods. Cryptocurrencies are much more efficient for this than traditional fiat payment rails. I think this will be a driver of stablecoin adoption in 2021.
Use Cases: BNB and NFTs
There are so many applications and use cases for BNB that I personally can’t count or keep tabs on now, from gaming to cross-border remittances. There is a large, diverse community in the BNB ecosystem now. I don’t know what they will come up with next, but I am sure many of them will be very exciting.
Another crypto asset class I’m looking into this year is NFTs. I think we will see increased sophistication and adoption for NFTs in 2021, from virtual items in games to concert tickets. I believe this is an exciting new area yet to be explored and I’m looking forward to seeing how these develop.
On Security
Security is a very extensive topic, I think there are a few areas to focus on in 2021:
1. User Education. I believe more user education is needed across the industry to help people avoid “rug pulls'' and scammers. We will continue emphasizing the importance of individuals educating themselves in order to make investment decisions cautiously and responsibly. Research before investing is key. In this area, Binance provides educational materials on Binance Academy, Binance Research, and CoinMarketCap to help investors make informed decisions.
2. Security Tools. Better tools are needed for regular people to securely hold their own private keys, with proper encrypted backups. Good cyber hygiene is complex and can be intimidating to cryptocurrency newcomers. We have invested heavily in multiple wallet developments to help on this front. Combining security with ease of use will be vital as more people invest in cryptocurrencies.
3. Security Investments. Centralized exchanges must increase security investments on technologies such as threshold signatures (TSS), to hold users’ funds more securely. Binance has open-sourced our TSS library, and a large number of community developers are contributing to it.
4. Personal Habits. Security threats and technologies used to defend against them evolve over time, but one thing remains constant: the human element. The human element is the weakest link. Attackers constantly prey on psychological flaws such as the desire for quick information and greed. There are increasingly sophisticated ways of abusing trust, including spear-phishing and social engineering. This can circumvent some of the most fundamental defense mechanisms we have relied on in the crypto ecosystem such as 2FA. At Binance, we continue to strive for zero trust in our enterprise security and trading platform security to protect our users.
This year, we will continue to keep our heads down and build products users want and love and develop and improve services that are beneficial to society and protect our users and the industry. There are new developments and products planned for 2021 -- stay tuned!
On the personal side, my New Year’s resolution for the last 10 years has been getting a six-pack, but I’ve never got there. My main hope is just that 2021 will be less crazy than 2020, and that people's lives continue to improve.
Wishing everyone a healthy and happy new year.
- CZ, Binance CEO
