1. About BNB Chain
Binance Smart Chain was officially launched on September 1, 2020 as the public blockchain of Binance CEX. BNB Chain is a blockchain ecosystem designed to facilitate the adoption of Web3 technology by reducing barriers for users and developers.
It provides a secure and efficient environment for decentralized finance (DeFi) and decentralized applications (dApps). As part of its ecosystem, BNB Chain offers several key components that enhance scalability, decentralization, and usability. Its low transaction fees and robust infrastructure make it an attractive platform for those looking to engage in blockchain-based activities. There are three core BNB Chain components:
- BNB Chain - is an EVM-compatible layer-1 blockchain known for its fast processing speeds and low transaction costs. It supports DeFi applications and smart contracts, providing users with a cost-effective alternative to other blockchain platforms.
- BNB Greenfield - is a decentralized storage network that focuses on providing decentralized data management and access and EVM programmability, to revolutionize the data economy by simplifying the process of storing and managing data.
- opBNB - is a high-performance optimistic rollup, layer-2 scaling solution for BNB built with Optimism OP Stack. opBNB has extremely cheap transaction cost around ~0.0001BNB.
Together, these components create a blockchain ecosystem that addresses needs from DeFi and smart contract deployment to storage and scalability positioning BNB Chain as a comprehensive platform for Web3 development.
(source: BNB Chain documentation)
Also, there is an ongoing migration process of staking and governance from “BNB Beacon Chain” to BSC (BNB Chain Fusion). The migration of all BNB Beacon Chain functionalities to BSC will result in higher BNB-staking APY, improved MEV rewards, and increased LST usage across the BNB network. The addition of native liquid staking to BNB will also bring the following benefits:
- Benefits for delegators: delegators can now access LSDFi and MEV income streams, alongside daily compounding staking rewards, making BNB Chain attractive for stakers. They also gain the ability to participate in direct voting on BNB, which was previously unavailable before BNB Fusion.
- Increased flexibility: liquid staking tokens enable users to engage with DeFi protocols without losing staking yields, improving flexibility in asset management. This also enhances BNB governance and expands application scenarios.
- Validator base expansion: with triple voting power and incentives for LSD/LRT partners, more participants can influence decisions and gain financial benefits. This transition invites new validators and fosters network diversity and innovation.
The expansion of liquid staking tokens (LSTs) on BNB Chain could lead to significant growth in the restaking sector. Restaking will enable validators and stakers to maximize the utility of their assets by participating in multiple staking opportunities across various layers. This expansion opens the doors for:
- Shared security protocols (trust marketplaces), where staked assets can provide security for multiple services simultaneously, thus increasing the overall security and efficiency of the network.
- Middleware protocols (AVS, Networks or DSS equivalents) built on top of these shared security systems will enhance how validators manage their restaked assets, offering new opportunities
- Liquid Restaking Token (LRT) protocols - issuers of Liquid Restaking Tokens (LRTs) enable users to tokenize their restaked assets and participate in additional staking or DeFi opportunities. These LRTs will represent restaked assets across various protocols, providing more liquidity and flexibility for users while maintaining their staking rewards. LRT issuers will play a critical role in connecting restaked assets with new financial opportunities across the ecosystem.
- LRTfi protocols - these protocols will provide users with advanced tools for leveraging LRTs in decentralized finance, such as lending, borrowing, and yield farming. By adding LRTs to DeFi strategies, LRTfi protocols will open up new layers of value and make it easier for restaked assets to make money. This will make restaking on BNB Chain even more useful and appealing.
2. BNB Consensus Mechanism
2.1. Consensus Mechanism
Binance Smart Chain (BNB) operates on Proof-of-Staked-Authority (PoSA) blockchain based on consensus mechanism which combines DPoS and PoA for consensus. In this type of consensus mechanism blocks are produced by a limited set of operators, in PoA manner and the validator set is elected with staking governance. The PoSA consensus mechanism supports short block times and lower fees but with the cost of a lower degree of decentralization.
2.2. Validator set
Validators on the BNB Smart Chain are specialized nodes that execute critical network functions such as block production and network security, as well as validation and transaction processing.
BSC employs a dynamic validator set to maintain its network security and efficiency. Each day after 00:00 UTC, a daily election process selects the top 45 validators based on their staking rankings. Among these, the 21 validators with the highest staked amounts are designated as Cabinets, while the remaining 24 are known as Candidates. Validators in this group of 45 are eligible to participate in block production, but only a subset of them is chosen for each epoch. Specifically, 18 validators are selected from the Cabinets and 3 from the Candidates, forming a consensus group of 21 validators for that epoch. This system ensures a fair rotation among validators while maintaining a balance between those with high and moderate stakes. The rest of these validators who have no chance to produce blocks have an “Inactive” role.
Cabinets, given their larger staked amounts, have a higher likelihood of being selected for block production compared to Candidates. However, both groups face equal responsibility in maintaining network performance and security. If a validator, whether from the Cabinets or Candidates, fails to participate when chosen for block production, they are subject to slashing penalties, which reduce their staked BNB and enforce a temporary suspension from the consensus process.
BNB staking APY depends on validators, and the highest APY at the time of writing is 1.89% by Star (Candidate, not Cabinet). Node operator commission represents a share of a delegator’s profit validators charge for their services and is placed inside an interval between 10% and 25% (depending on node operator/validator).
2.3. Reward distribution
Transaction fees are the primary source of the staking rewards on BNB Smart Chain (BSC), with the validator who proposed the block receiving the majority of the block fee. The validator’s operator account receives a portion of the rewards as commission on a daily basis, while a credit contract stores the remainder. Users receive their share of these rewards, along with their original stake, when they undelegate and claim them.
2.4. Governance
BSC introduces the native on-chain governance module, similar to the OpenZeppelin Governor (i.e. Ethereum and Solana have off-chain governance). Here are the key features of BSC governance:
- Proposal and Voting Rights: Staking credit holders can propose and vote on governance matters
- Continuous Rewards: Voters can keep earning staking rewards during the voting period
- Flexible Delegation: Users can delegate their voting rights, enabling others to participate in governance
- Secure Execution: Proposals undergo a time lock period before execution once passed
BNB Chain governance involves a two-step process: a temperature check and final decision voting. The temperature check, typically conducted through the Snapshot platform, allows any BNB holder to gauge community sentiment on a proposal. If the proposal receives enough support, it proceeds to the final decision voting phase. This phase often involves on-chain voting by validators or those with staked BNB, and the outcome determines whether the proposal is implemented or rejected.
BNB Chain DAOs are created on Tally.
2.5. Slashing
If validators double sign, vote maliciously or are frequently offline, their staked BNB (not including BNB of users that delegated to them) can be slashed. The penalty size and “jail” time depend on the severity of the violation.
- Double Sign Slash - an error where a validator signs multiple blocks at the same height. This act can lead to network forks, causing a rift in the blockchain’s state and undermining its security The penalty for double-sign slash is as follows:
- 200 staked BNB will be slashed from the validator
- The double sign jail time is 30 days, preventing the malicious validator from participating in consensus until manual intervention is taken
- Malicious Fast Finality Vote Slash - an error when a validator signs two fast finality votes with the same target height or the span of one vote including the span of another vote. The penalty for malicious vote slash:
- 200 staked BNB will be slashed from the validator
- The malicious vote jail time is 30 days, you can send an “unjailed” transaction after the jail time to reactivate your validator
- Rewards for submitting Malicious Vote evidence: 5 BNB
- Downtime Slash - if a validator misses over 50 blocks in 24 hours, the blocking reward won’t be given to him but will be shared among other validators. If validator continues to miss more than 150 blocks within 24 hours, it will trigger the following penalty for being offline:
- 10 staked BNB will be slashed from the validator
- The offline jail time is 2 days. This allows the validator to send an unjail transaction and resume as an active validator after 2 days
2.6 BSC MEV optimization
The BSC network launched the Builder API Specification to address the challenge of integrating validators with multiple MEV providers. Before this, BSC lacked native support, which caused instability due to different versions of the client software. This specification creates a unified MEV market that improves the network’s overall functionality.
BSC also adopted the Proposer-Builder Separation (PBS) model to restructure MEV economics. In this model, block builders submit blocks to proposers, who select the most profitable ones, ensuring that any validator can benefit from MEV extraction.The Sentry Node introduction further secures the communication and payment process between builders and proposers, improving network efficiency.
PBS on BSC operates differently from Ethereum due to BSC’s higher trust model, requiring substantial BNB delegation for validators, and its shorter block time of 3 seconds compared to Ethereum’s 12 seconds. These differences lead to unique designs in BSC’s PBS regarding transaction execution, block proposals, and APIs, fostering greater network efficiency and stability.
3. Token Economy (BNB)
3.1. BNB - BNB Chain Ecosystem Native Token
BNB serves as the native token across BNB Smart Chain (BSC), opBNB, and Greenfield, creating a unified token economy for the entire ecosystem. BNB circulates across all networks via a cross-chain communication mechanism, ensuring seamless movement of assets. The total supply of BNB is collectively managed across these networks, and BNB plays a role similar to ETH on Ethereum. BNB has following utilities:
- Transaction fees payment currency
- Staking and staking rewards
- Governance
3.2 Initial BNB supply and allocation
The BNB token was launched in July 2017 with an initial total token supply of 200 million BNB tokens. The token has deflationary token dynamics with 145,933,421 BNB circulating supply, caused by a series of burning mechanisms:
- Auto-Burn - mechanism that automatically s a specific amount of BNB token per quarter. Burned amount depends on token price and number of generated blocks that quarter.
- Pioneer Burn - a program that counts all accidentally lost BNB tokens.
- Gas-fee Burn - on BEP-95 was decided that 10% of all gas fees generated on BSC are automatically burned
3.3 Seed Fund
During BSC’s genesis stage, a specific amount of BNB, referred to as the “Seed Fund,” was burned on the Beacon Chain and minted on BSC. This initial supply was created to circulate on BSC, with the funds allocated to the first validator set introduced at the network’s launch. The Seed Fund plays a critical role in ensuring a smooth transition and initial operation of the network.
3.4 Burning Mechanism
To accelerate the decentralization of BNB Chain and reduce the total supply of BNB over time, BSC implemented a real-time burning mechanism. In each block, a fixed portion of the gas fees collected by validators is burned. The validators can adjust and govern this burning ratio to ensure it aligns with the network’s economic and governance needs. This mechanism helps maintain a deflationary pressure on BNB, promoting long-term scarcity and value.
4 Ethereum vs BSC vs Solana - Comparison Table
| Feature | Ethereum | BNB Chain | Solana |
|---|---|---|---|
| Consensus Mechanism | Proof of Stake (PoS) | Proof of Staked Authority (PoSA) | Proof of History (PoH) + Proof of Stake (PoS) |
| Finality | Approximately 6-12 minutes with Casper FFG | Approximately 3 seconds | 400 milliseconds to 1 second |
| Staking Mechanism | Staking 32 ETH per validator, decentralized, random selection | Staking BNB, validators selected based on stake size, semi-centralized | Delegated Proof of Stake (DPoS), SOL stakers delegate to validators |
| Governance | Community-driven, off-chain EIP process | Validator-based governance with temperature check and final on-chain voting | Off-chain governance, votes on-chain for important proposals |
| Slashing | Yes, for malicious behavior or being offline | Yes, slashing for misbehavior or inactivity | Yes, slashing for malicious activity or inactivity |
| Security Model | Byzantine fault tolerant, decentralized | Byzantine fault tolerance with hybrid PoA/DPoS model | Byzantine fault tolerant with PoH added for efficiency |
| Block Time | 12 seconds | 3 seconds | 400 milliseconds |
| Native Token Usage | ETH for fees, staking, and cross-chain operations | BNB for fees, staking, and cross-chain operations | SOL for fees, staking, and governance |
| Validator Set Size | Large, decentralized validator set with 32 ETH staking per validator | Smaller validator set, top validators chosen based on stake size | Medium-sized validator set, stakers delegate SOL to validators |
| Gas/Transaction Fees | High during congestion, reduced by Layer-2 solutions | Low transaction fees, suitable for micro-transactions | Extremely low fees, less than $0.01 per transaction |
| Ecosystem and dApp Support | Strong ecosystem with thousands of dApps, especially in DeFi and NFTs | Growing dApp ecosystem, especially in DeFi and GameFi | Rapidly growing ecosystem, focus on high-speed applications |
| Operational Decentralization (Nakamoto Coefficient) | Low to medium (around 34 validators control most of the stake) | Lower decentralization, with a small set of active validators | Medium (Nakamoto coefficient around 19-30) |
| Main Use Cases | DeFi, NFTs, Smart Contracts, Decentralized Applications | DeFi, GameFi, NFTs, Governance | DeFi, NFTs, Web3, Real-time applications |
In the table above are compared core blockchain features of Ethereum, BSC and Solana smart contract networks. Ethereum is the largest network according to TVL, highest decentralization degree (Nakamoto coefficient) and lowest entry barrier (low hardware requirements and minimum 32 ETH in stake). Solana on the other side has faster (Finality and Block Time) and cheaper transactions (less than 0.01$ ) compared to Ethereum and BSC.
The BNB Chain has ongoing staking and governance migration from BNB Beacon chain to Binance Smart Chain. After the migration to BSC, users can expect improvements in staking APY level, more efficient MEV usage by BSC validators, progressive decentralization, better UX for users and enhanced security.
Points:
- BSC governance operates as an on-chain governance model similar to Compound finance, unlike Ethereum and Solana, which use an off-chain model.
- BSC is launched and supported by the largest centralized exchange, Binance; this can bring positive and negative standpoints. It results in easier user acquisition but often rotocols built on BSC are usually tied for Binance core products and serve as Binance extended on-chain features.
- BNB Smart Chain starts its development based on go-ethereum fork. Toolings, binaries and docs are based on Ethereum.
| Blockchain | TPS - 23-09-2024 (17:00 UTC) | Max Recorded TPS | Max Theoretical TPS | Block Time | Time to Finality | Governance Model | Blockchain Type |
|---|---|---|---|---|---|---|---|
| Ethereum | 14.29 tx/s | 62.34 tx/s | 119 tx/s | 12.04s | 16m | Off-chain | PoS |
| BSC | 50.13 tx/s | 1,731 tx/s | 2,222 tx/s | 3.01s | 7.5s | On-chain | PoSA |
| Solana | 712 tx/s | 7,229 tx/s | 65,000 tx/s | 0.46s | 12.8s | Off-chain | PoH + PoS |
4.2 Staking metrics and indicators for Ethereum BSC and Solana
| Blockchain | Circulating supply | Staked Tokens | Staking Ratio | Validators | Reward Rate | Weekly Devs/Commits/Repos | Protocols |
|---|---|---|---|---|---|---|---|
| Binance Smart Chain | 145,933,420 | 31,143,529 | 21.34% | 45 | 3.53% | 567 / 5943 / 21,517 | 824 |
| Ethereum | 120,362,77 | 34,366,170 | 28.59% | 1,073,550 | max 2.10%, min 0.3% | 2,944 / 40,910 / 112,545 | 1258 |
| Solana | 468,724,584 | 388,764,419 | 82.94% | 1,377 | 6.91% | 769 / 3934 / 49,227 | 185 |
Binance Smart Chain (BSC) has a lower staking ratio (21.34%) compared to Ethereum and Solana, mainly due to the ongoing migration from the Beacon Chain to BSC and the significant portion of BNB supply held on Binance CEX. Additionally, the high bond requirements for the validator’s entry act as a further constraint. The lower interest rate for BNB staking is expected, as BNB follows a deflationary policy, unlike Ethereum’s elastic supply and Solana’s inflationary model. Despite this, BSC shows stronger development activity than Solana, largely due to its EVM compatibility, attracting more developers and projects.
At the moment, the restaking concept is still in development, and most of the innovation is powered by restaking protocols that act as “trust marketplaces” such as EigenLayer, Symbiotic, Nektar Protocol, and Karak. These protocols focus on maximizing the utility of staked assets by allowing validators to secure multiple services at once, thereby enhancing both economic and network security. On BNB Chain, restaking will likely follow similar models, utilizing staked BNB as collateral to provide security for various applications, further driving the evolution of staking and DeFi within its ecosystem.
Although most restaking demand currently exists on Ethereum due to its significant economic security and decentralization, BNB Chain may drive demand for restaking based on its unique ecosystem needs, particularly in DeFi and GameFi applications.
Middleware protocols on Ethereum, essential restaking consumers, have yet to prove their long-term business sustainability, which could influence BNB Chain’s adoption of similar restaking services.
5. Closing
ETH and ETH LSTs will remain high quality assets for economic security because their use cases are aligned with Ethereum. That will include all possible use cases offered by AVSs. By contrast, BSC has 2 rollups for now - opBNB and zkBNB. These are still in development so rollup services and ecosystems will be developed longer into the future.
With that being said, middleware and dapps built on top of BNB will be more sector oriented: MEV Management, Liquidation keepers, risk engines and similar services will all be BNB Chain specific. Having the BNB token as main restaking collateral on BSC has limitation compared to ETH both in market capitalization and token distribution.
Finally, BNB doesn’t have a native restaking protocol like Eigen Layer on Ethereum. In our eyes, their cross-chain solutions like Karak are a temporary solution that need a BNB-native replacement. At this point, it is premature to talk about BNB as competitive space for restaking marketplaces because there are no native restaking protocols.
BNB Chain is a promising yet developmental environment to join the restaking paradigm. While other networks enjoy a significant headstart, the skill of BNB Chain’s ecosystem may yet close that gap. BNB Chain’s main advantage is its uniqueness and loyalty from its developers, and their proven dynamism may be well suited to making an attractive risk-adjusted opportunity for users seeking additional yield.