What the Lagging Performance of Binance Smart Chain Implies for Layer 1 Blockchains

In terms of total value locked up, the previously popular Ethereum alternative has fallen significantly from its all-time high. Binance Smart Chain (BSC) was previously outperforming Ethereum in key blockchain measures, but the once-favored Ethereum alternative has seen its growth stagnate as layer 1 blockchain competition has grown.

On the other hand, experts report that an increased frequency oF exploits on BSC has sparked concerns about the platform’s security, with some BSC users reportedly abandoning the site due to concerns about the protection of their cash as a result of the increased frequency of exploits.

Although it remains the second most valuable blockchain in terms of total value locked (TVL), the layer 1 blockchain controlled by cryptocurrency exchange Binance has seen a significant drop in value after reaching an all-time high in early May, according to CoinMarketCap.

The term “TVL” refers to the total value of crypto assets locked in decentralized finance (DeFi) protocols on the blockchain, as determined by the number of crypto assets locked in DeFi protocols. Additionally, the TVL values of layer 1 blockchains such as Solana, Terra, and Avalanche have reached new all-time highs in the recent week, breaking previous records.

Even though Binance founder and CEO Changpen Zhao openly said on social media that BSC is outperforming Ethereum, a BSC spokesman informed CoinDesk that BSC “does not compete” with any other blockchain.

Samy Karim, BSC’s ecosystem coordinator, claimed in a series of Telegram chats that “TVL growth and retracements are impacted by a variety of elements, the most significant of which are market conditions, which are markedly different than they were when BSC’s TVL was at its all-time high.” “TVL growth and retracements are impacted by a variety of factors, the most prominent of which are market conditions, which have shifted dramatically since BSC’s inception.

According to Karim’s opinion, “TVL alone does not reflect the health or performance of BSC’s Defi ecosystem.” According to Messari’s second-quarter study on layer 1 blockchains, BSC was particularly hard hit by May’s exceptionally severe market fall.

This was because the overwhelming majority of value locked up on BSC was money-oriented capital seeking liquidity mining incentives, and the overwhelming majority of assets on BSC had restricted applications.

According to statistics from DeFi Llama, the most popular TVL protocols on BSC are the decentralized exchange PancakeSwap and the loan protocol Venus, which are ranked #1 and #2 in terms of user popularity, respectively. Both are unlikely to change significantly, given the TVL’s precipitous decline in early May.

At the end of May, the Venus protocol saw a more than USD 200 million increase in liquidations, which was most likely caused by price manipulation of the network’s native venus token. Meanwhile, PancakeSwap was exploited in a USD 45 million flash loan scam on another BSC-based DeFi protocol, PancakeBunny, in which PancakeSwap was a victim of PancakeBunny.

According to Ryan Watkins, a Messari research analyst, “BSC should have been renamed Binance Rug Chain,” underlining the fact that the rising frequency of attacks on BSC-based protocols has scared away consumers.

Venus’ international community representative, “Danny,” who did not give their complete identity in a Telegram discussion, tells CoinDesk that the Venus team is working on many network improvements to increase its security. As the authors put it, “after all of the key changes are implemented, we will reintroduce normal growth, most possibly much more rapidly than expected by others.”

According to Rupert Douglas, head of institutional sales at Alpaca Finance, another prominent BSC-based DeFi protocol, the rising incidence of BSC assaults is “roughly proportionate to the blockchain sizes.”

Douglas further asserted that the rising frequency of BSC assaults is “roughly proportionate to the blockchain sizes.” Additionally, he noted that the BSC blockchain is not the only one susceptible to attacks and failures, giving the Ethereum blockchain as an example.

The size of a network increases the number of potential targets that hackers can explore, Douglas explained. “The more high-TVL projects there are, the more hackers will rummage around in their code looking for probable flaws,” the author argues.

Because the great majority of these emerging networks contain just one to three projects with considerable TVL,” none of these networks have yet achieved that stage of growth. Cumberland, a cryptocurrency trading subsidiary of DRW Holdings LLC, has stated that in order to improve the remaining two of the three foundations of blockchain development, one of the three elements of scalability, security, and decentralization must be sacrificed.

Nate George, a crypto-asset analyst specializing on blockchain technology at Cumberland, refers to this as the “blockchain trilemma.” Decentralization was specifically compromised in the interest of efficiency in the instance of BSC.

The BSC blockchain employs the most secure Proof-Of-Staked-Authority (PoSA) security mechanism currently available. It is maintained by a network of 21 node operators, the majority of whom are controlled by Binance. This growth coincided with the network’s congestion and the subsequent increase in gas prices, both of which led to the rise of BSC.

Gas is a term that refers to the amount of computing effort necessary to do particular tasks on a blockchain, such as the Ethereum blockchain. To execute a transaction on the blockchain, a charge in the network’s native token, ETH, is required.

Binance CEO Changpeng Zhao stated last year in an interview with CoinDesk that the firm had to sacrifice some features of decentralization to compete with Ethereum when developing BSC. According to Zhao’s explanation in the interview, “there is a trade-off between increased decentralization and increased speed, and so we determined that 21 community-operated nodes would be sufficient.”

According to a business representative, Danny, one of the reasons Venus selected BSC was the platform’s speed and low prices, which enabled the firm to deliver Venus’ loan and borrowing services to clients from all over the world, particularly those in developing nations. Venus is a lending and borrowing platform that offers loans and borrowing services to consumers.

According to Karim, for BSC to maintain its “momentum,” both the BSC team and the standards governing BSC must adapt “adding additional levels of security while simultaneously raising user awareness.

While acquiring new capital through cheaper, quicker transactions is a crucial initial step for any smart contract blockchain, security and decentralization remain critical for long-term user retention, as demonstrated by BSC’s problems.

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