PancakeSwap’s ascent to the top among Binance Smart Chain (BSC)-based protocols by value locked has drawn mixed reactions from experts.
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Analyst Calvin Chu questioned the reliability of the spike in the number of unique addresses on BSC. He saw in this the influence of the team-led 1inch токена Chi (CHI) and its release on BSC.
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CHI allows users to ‘lock in’ a low gas price and deploy it when it rises, which undermines the economic rationale for carrying out various operations, including arbitrage.
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In mid-February, the liquidity aggregator from decentralized exchanges 1inch opened access to projects on BSC, including PancakeSwap.
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Since mid-February, users have begun deploying CHI on BSC, which coincided with a spike in active addresses in the network. Chu explained that the “active” addresses are those that receive or send coins. The analyst suggested that this happened with CHI — the creation of a new token requires obtaining ETH to activate the contract.
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4/n This roughly coincides with the incredibly high spike that users may see in this bscscan graph. Why? Because the metric «active addresses» means an address that receives or sends ETH (or in this case, BNB on bsc).
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— Calvin Chu (@calchulus) March 7, 2021
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Chu explained that due to gas-price differences there can be situations where CHI is cheaper to acquire on Uniswap/Mooniswap than to accumulate it on Ethereum.
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In BSC, CHI is easier to issue due to low fees. As a result, activity will naturally increase on the Binance Smart Chain. Calvin Chu urged not to rely on the active-address metric as confirmation of the BSC ecosystem growth.
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12/n the takeaways being:
\n1. stop looking at a mediocre metric to measure network growth or real adoption
\n2. stop trying to pin this on a chain or a specific ecosystem.\n
— Calvin Chu (@calchulus) March 7, 2021
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Another analyst Andrew Kang noted that after BSCscan updated their algorithms to account for CHI issuance, the growth slope of active addresses took on a more realistic shape. In a thread, he attempted to counter skeptics’ claims about ‘fake’ activity on BSC.
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2/ The most commonly cited questionable activity we saw was that of unique addresses
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The sudden uptick in unique addresses was mostly attributed to CHI tokens being minted. When BSCscan changed their algo to exclude addresses generated by the CHI contract, slope normalized pic.twitter.com/Vq24G0JtQs
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— Andrew Køng (@Rewkang) March 15, 2021
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He noted that, unlike centralized platforms, on DEX it’s much harder to organise \”wash trading\”. The essence of this practice is the simultaneous buying and selling of assets to create an illusion of high trading activity.
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According to Kang, transaction data is open and auditable. Binance would have to spend around $730 million per year in fees, based on a rate of 20 basis points of volume and a daily turnover of $1 billion.
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The researcher supplemented the analysis with transaction volumes—the metric rose as TVL increased. He introduced the term DEX AMM Velocity (the ratio of transaction volume to TVL), which describes the turnover speed of capital AMM.
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10/ Now let’s introduce a concept called DEX AMM velocity (ratio of Tx volume vs TVL) which tracks the speed of turnover of AMM capital
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Higher velocity means that capital is being turned over faster (higher flow). Flow can be segmented to:
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— non-arbitrage flow
\n— arbitrage flow pic.twitter.com/CHirEzeec6\n
— Andrew Køng (@Rewkang) March 15, 2021
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This flow can be segmented into arbitrage and non-arbitrage components. The former better reflects real user activity. Kang cites DappRadar data showing comparable metrics for their numbers on PancakeSwap and Uniswap.
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Comparing volume to users:
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- The \”volume per user\” metric is rising across the board, reflecting higher asset prices.
- Curve sees mostly large trades.
- Sushi+Balancer have high volume per user indicating a skew toward larger traders and arb flow.
- Uni+PCS indicate a skew toward retail investors.
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13/ Comparing volume to users:
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— Volume/User is increasing across the board reflecting higher asset prices
\n— Curve sees mostly large tx trades
\n— Sushi+Balancer have high volume/user indicating skew towards larger traders+arb flow
\n— Uni+PCS indicate skew towards retail pic.twitter.com/aJ1hSBGZta\n
— Andrew Køng (@Rewkang) March 15, 2021
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Kang added that activity in BSC communities confirms his conclusion about rising engagement. The expert estimates it is now higher than ETH projects. He found nothing extraordinary in on-chain analysis of Binance Smart Chain.
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Kang said that his study does not confirm ‘fake activity’ and bot-washing in BSC, but rather indicates growing interest from retail investors.
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The Block analyst Larry Cermak noted that Kang’s work could be more useful if he studied liquidity-provider addresses. The $730M figure cited in the study is not entirely correct, since Binance provides a large share of liquidity, added Cermak.
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You mention that Binance would need to pay $2M a day ($730M annualized) to wash trade but that’s not really correct if we assume that the vast majority of liquidity is being provided by Binance itself. The most convincing analysis here would be to focus on the addresses LPing
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— Larry Cermak (@lawmaster) March 15, 2021
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Binance CEO Changpeng Zhao thanked Kang and noted that he learned a lot from the thread.
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Very interesting thread, with detailed analysis. Learned a lot. 🙏🙏🙏 https://t.co/W2tB1BvW5w
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— CZ 🔶 Binance (@cz_binance) March 15, 2021
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In early March, TVL in the PancakeSwap protocol on the Binance Smart Chain topped $4 billion.
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Read more about the BSC rise in the February report.
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