Andrew Thurman

For the second time in just a matter of weeks, a DeFi protocol has taken unusual measures to prevent systemic risk relating to a lending position.&nbsp;



 The Binance Smart Chain-based lending protocol, Venus, announced on Thursday night that a notorious quarter-billion dollar position was “made healthy” by the BNB core team following a liquidation of $33 million worth of Binance Coin.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Following today’s market movement, the BNB Bridge exploiter account was made healthy as promised by <a href="https://twitter.com/BNBCHAIN?ref_src=twsrc%5Etfw">@BNBCHAIN</a> using whitelisted liquidation without any resulting shortfall or further impact to <a href="https://twitter.com/search?q=%24bnb&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$bnb</a> <a href="https://t.co/TGZ7nbiDPN">https://t.co/TGZ7nbiDPN</a>&mdash; Venus Protocol (@VenusProtocol) <a href="https://twitter.com/VenusProtocol/status/1692421277762412586?ref_src=twsrc%5Etfw">August 18, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The position was first created in October 2022 following one of the largest hacks in crypto history. An attacker — now widely believed to be the North Korean-affiliated Lazarus Group — stole 2 million Binance Coin (<a href="https://blockworks.co/price/bnb">BNB</a>) worth over a half billion dollars at the time from a cross-chain bridge. 



Unable to offload their haul without drastically reducing the BNB price, the attacker hesitated. They might have feared a chain rollback or another retaliatory action from Binance. Instead, the attacker deposited hundreds of millions into Venus as collateral. This allowed them to secure a massive $150 million stablecoin loan, most of which was then <a href="https://twitter.com/SlowMist_Team/status/1578159110708940801?s=20&amp;t=l3ut_4eHdcnOIU7oz0ibhQ">bridged</a> to other chains and exchanged for ETH. Only a minor portion of it was frozen by Tether. It is unlikely the attacker ever intended to repay this debt.



Per data from <a href="https://defillama.com/protocol/venus-finance">DeFiLlama</a>, at the time of the attack the deposit from the exploiter accounted for nearly 20% of Venus’ total value locked, and limited liquidity for BNB meant that liquidating the position could pose existential risks for Venus in the form of bad debt.&nbsp;



As a result, in November the BNB core team successfully <a href="https://community.venus.io/t/bnb-chain-core-team-as-the-sole-liquidator-of-the-bnb-exploiter-address/3202">proposed</a> becoming the sole liquidator responsible for the position via Venus governance.



“As the market is very volatile, there is potential risk that if liquidated, there is potential this large portion of BNB may cause more cascading liquidation effect and unnecessary damage to the market and cause more risks to Venus, Venus users, BNB token, and BNB chain,” a core team representative wrote in the formal vote.&nbsp;



The position then largely sat dormant until June 2023, as the price of BNB fell close to liquidation threshold. $30 million tether (<a href="https://blockworks.co/price/usdt">USDT</a>) was <a href="https://twitter.com/ScopeProtocol/status/1668159956598800384?s=20">added</a> to the liquidator address, adding to an initial $30 million BUSD position.&nbsp;



Last night, <a href="https://blockworks.co/news/bitcoin-crypto-sell-off-market-jitters">amid a marketwide rout</a>, BNB dipped below the liquidation threshold of roughly $220 million, leading the assigned BNB core team liquidation address to step in.&nbsp;



In an interview with Blockworks, pseudonymous Venus BD &amp; Community Lead “Danny” confirmed that – despite widespread reporting that the liquidation was for over $60 million – the BNB core team seized $33 million of BNB collateral by liquidating $30 million in USDT in debt across a series of three <a href="https://debank.com/profile/0x489a8756c18c0b8b24ec2a2b9ff3d4d447f79bec/history">transactions</a>.&nbsp;



Even with the liquidation the protocol may not be out of the woods, as Debank shows that the health rate of the position is perilously low, and another downturn could lead to further liquidations at a price of roughly $210.8 per BNB. After the liquidations today, the liquidator address has an <a href="https://www.scopescan.ai/address/0x56306851238d7aee9fac8cdd6877e92f83d5924c?network=bsc">additional</a> $29.9 million in stables remaining, relative to $126 million in outstanding remaining debt.&nbsp;



“BNB Chain will continue to monitor and manage the health of the account as necessary,” said Danny.&nbsp;



<h2 class="wp-block-heading">Lending markets under stress</h2>



Venus is not the only lending market to come under stress in recent weeks.&nbsp;



On July 31, decentralized exchange <a href="https://docs.google.com/document/d/1vpS9XmPjwCHd2JZxqj84oW_8YTzDuR72YJXpa_Et1pE/edit?usp=sharing">Curve Finance suffered a $70 million hack</a>. While much of the losses were later recovered or seized by whitehats, one of the greatest losses was to a CRV/ETH pool, which was central to CRV’s onchain liquidity.&nbsp;



CRV’s liquidity depth and price soon became a focal point for the DeFi community, as <a href="https://blockworks.co/tag/curve">Curve</a> founder Michael Egorov had outstanding loans worth upwards of $110 million owed to various protocols using CRV as collateral. The liquidation of these positions without a source of onchain CRV liquidity could have caused a rash of bad debts and liquidation cascades across the space.&nbsp;



Ultimately Egorov managed to pay down large swaths of his debts by <a href="https://blockworks.co/news/curve-egorov-exit-defi-positions">selling large sums of CRV OTC</a> to a number of counterparties.&nbsp;



Egorov still has over $45 million in outstanding <a href="https://debank.com/profile/0x7a16ff8270133f063aab6c9977183d9e72835428">liabilities</a> owed to various protocols.



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DeFi on the brink of second bailout as Venus liquidates $30M

Macauley Peterson

Community governance has given a tentative thumbs up to the deployment of <a href="https://blockworks.co/tag/aave">Aave</a>’s borrowing and lending protocol on two additional chains, with a third potentially on the way.



Recent “temperature check” votes provided overwhelming support for adding Aave’s latest <a href="https://blockworks.co/news/aave-ethereum-pool-v3-vote">version 3</a> to the newly launched Ethereum layer-2 rollup, <a href="https://blockworks.co/news/polygon-zkevm-live-on-ethereum">Polygon zkEVM</a>, as well as to Binance’s <a href="https://blockworks.co/tag/bnb-chain">BNB Chain</a>, an alternative layer-1. Both chains employ dapps using the <a href="https://www.blockworksresearch.com/glossary#the-ethereum-virtual-machine-evm">Ethereum virtual machine</a> (EVM).



Governance token (<a href="https://blockworks.co/price/aave">AAVE</a>) holders signaled <a href="https://snapshot.org/#/aave.eth/proposal/0x4579b562a4ea07c52871f724a8baf156514a97384e9427156d04fb6f0ae91515">nearly unanimous</a> support for the expansion plans put forward by Marc Zeller, an independent Aave DAO delegate with the Aave-Chan Initiative. Zeller’s own vote in favor represents over 40% of the vote total in each case. Of his stake, around 95% of the <a href="https://www.tally.xyz/profile/aavechan.eth?governanceId=eip155:1:0xEC568fffba86c094cf06b22134B23074DFE2252c" target="_blank" rel="noreferrer noopener">delegated</a> AAVE comes from 190 individual holders, Zeller told Blockworks.



Proponents will eventually need to submit an Aave Improvement Proposal (<a href="https://docs.aave.com/governance/aips">AIP</a>) to pave the way for a formal on-chain vote before any such deployment will actually occur.



The latest proposal, posted Monday, could also <a href="https://snapshot.org/#/aave.eth/proposal/0xde90f4d29c4c5dd55cba023b29bdde8c49e37f70c3398668a78e2f173a61b4e6">add Starknet</a> to the growing list of chains expected to sport an Aave implementation. The active vote for this proposal runs until April 10.



Although Polygon’s zkEVM mainnet only officially launched on March 27, Aave has already notched 6 months of experience on the network through its testnet, which became available in October 2022. According to <a href="https://snapshot.org/#/aave.eth/proposal/0x0777eb4701023508c03825e2779e6189326ed9b3d1eb6e187d1f6e0f8d154605">the proposal</a>, the deployment “presents an opportunity for Aave Governance to establish a strategic presence on this new network early on,” adding “Aave has a history of pioneering in new frontiers, starting with the Polygon &amp; Avalanche V2 deployment in 2021.”



The protocol is currently active on seven chains in total, although around 85% of its $5.68 billion in total value locked (TVL) remains on Ethereum’s mainnet, according to data from DefiLlama.



BNB Chain — formerly known as Binance Smart Chain (BSC) — <a href="https://defillama.com/chains">registers</a> almost three times the number of active users as Ethereum, despite a TVL of 17% that of Ethereum’s total.



The two most popular DeFi protocols on BNB Chain are forks of Ethereum stalwarts; PancakeSwap launched as a clone of Uniswap V2, and still predominates in the DEX space on BNB Chain — although it <a href="https://blockworks.co/news/uniswap-coming-to-bnb-chain">will soon face competition from Uniswap</a> itself — and developers <a href="https://venus.io/Whitepaper.pdf">forked</a> borrowing and lending protocol Venus from Aave’s rival Compound in 2020.



DeFi developers and their Ethereum-centric communities have been slow to embrace BNB Chain, which is “less decentralized by any metric,” Zeller told Blockworks. Even so, he said he advocates for a “pragmatic approach” that offers options to users.



“[A]fter years, the BNB ecosystem [has] shown resilience and [product-market fit], it&#8217;s time to break the taboo,” Zeller said.



Aave is also gearing up to launch <a href="https://blockworks.co/news/aave-stablecoin-on-ethereum-testnet">its own stablecoin, GHO</a>, which launched on Ethereum’s Goerli testnet back in February. Zeller added there&#8217;s a strategic aspect to the BNB Chain expansion in particular, owing to the <a href="https://blockworks.co/news/the-end-of-busd-on-chain-metrics">recent collapse in market share</a> of the company’s <a href="https://blockworks.co/tag/busd">Binance USD</a> (BUSD) stablecoin.



“BUSD left some void in ‘native’ on-chain stablecoins,” Zeller said.



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Aave Governance Gives OK to BNB Chain, Polygon’s zkEVM

Ben Strack

The number of crypto attacks spiked during the first quarter, though the total losses accumulated over the span are down, according to a report by Web3 security platform Immunefi.



The two major exploits during the first three months of 2023 — ones that <a href="https://blockworks.co/news/euler-suffers-200m-exploit">targeted Euler Finance</a> and BonqDAO — accounted for $317 million of the $477 million seen during the quarter.&nbsp;



The $477 million of crypto losses was considerably lower than the first quarter of 2022, in which roughly $1.2 billion was lost, according to Immunefi.&nbsp;



“Projects have significantly increased their security measures through audits and bug bounties, but blackhats have kept pace,” Immunefi CEO Mitchell Amador said in a statement. “Losses are currently down, but mostly because the amount of funds in crypto has decreased, making hacks less devastating.”



Despite the drop in losses, the number of incidents has risen from 25 in 2022’s first quarter to 73 in the first three months of 2023. This increase reflects the highest quarterly activity the sector has seen in the past two years, Immunefi data shows.



The nearly 200% year-over-year increase could be “a random anomaly,” Immunefi communications lead Jonah Michaels told Blockworks. Or, he added, it could be a result of lower prioritization of security during the bear market and a growing hacker community attracted to the possibility of big gains.



“In the Web2 world, blackhats fight over databases of credit cards and other information that can be difficult to monetize,” Michaels said. “In the Web3 world, blackhats can steal hundreds of millions in the blink of an eye. It’s not hard to understand why they might be attracted to Web3.”&nbsp;



<h2 class="wp-block-heading">The most targeted chains</h2>



<a href="https://blockworks.co/tag/bnb-chain" target="_blank" rel="noreferrer noopener">BNB Chain</a> is the most targeted chain, with 33 incidents last quarter. Ethereum followed with 22 incidents.



Adrian Hetman, Immunefi’s tech lead triager, said BNB Chain “lacks a security-first approach and attracts many users looking for a quick way to earn money.”



<a href="https://blockworks.co/news/binance-pauses-trading-of-native-token">Attackers exploited BNB Chain</a> last October for $100 million. While decentralized chains are not designed to be stopped, according to a BNB Chain statement at the time, it sought to limit the damage by contacting community validators one by one to halt transactions. The blockchain added it was seeking to expand the validators to boost <a href="https://blockworks.co/what-it-takes-to-halt-a-decentralized-blockchain-like-binance">further decentralization</a>.



A BNB Chain spokesperson did not immediately return a request for comment Tuesday.&nbsp;



Arbitrum, which had no incidents in last year’s first quarter, endured eight incidents in the months leading up to <a href="https://blockworks.co/news/arbitrum-airdrop-faq">the launch of its ARB token</a>, followed by Polygon and Optimism with five and three incidents, respectively.



“This quarter should reinforce the importance of security,” Michaels told Blockworks. “To projects, we would recommend they hire someone to focus on security full-time. To whitehat hackers, we would recommend that they double down on their efforts to responsibly disclose bugs before blackhats get their first.”



<h2 class="wp-block-heading">A rise in recovery</h2>



Euler was hit with a flash loan attack last month in what amounted to a $200 million exploit.&nbsp;



The <a href="https://blockworks.co/news/euler-exploiter-returns-money">recovery of $177 million</a> by Euler Finance and about $250,000 by <a href="https://medium.com/sperax/usds-feb-3-exploit-report-from-engineering-team-9f0fd3cef00c">SperaxUSD</a> represent roughly 40% of the total losses endured during the first quarter.&nbsp;



The recovery level is nearly equal to how much was recovered <a href="https://assets.ctfassets.net/t3wqy70tc3bv/1ObYJk9jzWS4ExHICslYep/e2b5cee51268e47ee164c4dffbd78ad4/Immunefi_Crypto_Losses_2022_Report.pdf">in all of 2022</a>, making up about 5% of the nearly $4 billion lost last year.&nbsp;



Euler <a href="https://forum.euler.finance/t/special-announcement/900">notified</a> its community Tuesday that additional funds had been returned, bringing the recovery totals up to about $200 million.&nbsp;



“A plan for the restoration of user assets will be laid out in the coming days for review and consideration by the Euler community,” according to a company statement.



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Q1 Crypto Attacks Up, Money Lost Is Down: Report

Layer-1 blockchains have recovered strongly from December market lows, underlining their prominence as a paramount sector of the cryptocurrency industry. The native assets for key players like Ethereum, BNB Chain, Solana, and Avalanche have posted massive gains across the board, with investors weighing up the possibility of a continued uptrend.



Tellingly, adoption metrics for the underlying networks have emerged as a crucial indicator for predicting the price action of layer-1 (L1) projects. <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">On-chain data reveals that an L1 asset&#8217;s value tends to increase or decline based on user activity and demand for blockspace.</a> Therefore, tracking the relationship between active addresses and the price of an L1 asset can enable investors to spot potential opportunities. These insights also deliver a gauge for measuring the competitive moat of a layer-1 network.



The <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg Terminal</a> provides actionable trading data from on-chain activity across leading L1 networks. Analyzing these data sets gives investors the competitive edge to make calculated investments into L1 ecosystems.



<h2 class="wp-block-heading">The year so far for L1s</h2>



Market valuations for L1 projects has rebounded from the harsh conditions created by the fallout of several centralized crypto companies, including FTX, Celsius, BlockFi, Genesis Capital, and several others. As of late December 2022, most L1 assets traded more than 90% below their all-time highs.



Nonetheless, the collapse of centralized entities emphasized the need for blockchain-based alternatives powered largely by L1 networks. This has, in turn, led to an increase in user demand for L1 assets to own a stake in these networks and access decentralized applications.&nbsp;



Unsurprisingly, the market value for a subset of L1 assets (ETH, BNB, SOL, AVAX) tracked by Bloomberg Intelligence has risen by an average of 79% year-to-date. Solana&#8217;s SOL token is the biggest gainer, with nearly 150% gains since the turn of the year. The most widely used networks, Ethereum and BNB Chain, have also recorded 38% and 28% gains, respectively.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="534" height="396" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png" alt="" class="wp-image-50707" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=534 534w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=347 347w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=352 352w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=295 295w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=80 80w" sizes="(max-width: 534px) 100vw, 534px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


Regardless of the recovery of L1s, the year ahead is likely to be volatile. Unlike the recent increase linked to a broader market recovery from oversold levels,  Bloomberg Intelligence Senior Market Structure Analyst Jamie Douglas Coutts <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">predicts that</a> &#8220;price momentum [for L1s] will need to be matched with strengthening fundamentals [while] pointers such as user adoption and protocol monetary policy” will be crucial, especially as the L1 wars resume in the coming months.



<h2 class="wp-block-heading">Competitive moats for L1 networks</h2>



The 2022 bear market provided a stern test for L1 ecosystems, with user activity recording a steep decline throughout the year. At the same time, the downturn provided a yardstick for measuring the competitive moat of each L1 network.&nbsp;



For instance, Ethereum and BNB Chain showed greater resilience to the lower blockspace demand than competing L1s Solana and Avalanche. The number of active addresses on Solana and Avalanche dropped by 69.9% and 26.46%, respectively, while Ethereum and BNB saw less than a 2% decline under the same user metric.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="532" height="539" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png" alt="" class="wp-image-50704" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=532 532w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=296 296w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=254 254w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=258 258w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=216 216w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=80 80w" sizes="(max-width: 532px) 100vw, 532px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


The number of active addresses on an L1 is a crucial metric as it represents the number of actual users on each chain. Hence, the sustained demand for Ethereum and BNB Chain blockspace underlines their position as the leading destination for Web3 users.&nbsp;



In contrast, the decline in active addresses on Avalanche and Solana amid the bear market suggests user interest in these L1s is connected to short-term plays within the respective ecosystems. Moreover, the active addresses metric delivers other actionable insights for investors to optimize their L1 portfolio.



<h2 class="wp-block-heading">The power of active addresses </h2>



Bloomberg&#8217;s analysis demonstrates that the number of active addresses heavily impacts the price action of L1 assets. The study utilized the widely-trusted &#8220;R-squared&#8221; methodology to uncover that the <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">correlation between price action and active addresses on the top three L1s</a> (Ethereum, BNB Chain, and Avalanche) ranged from moderate to strong.



Understandably, Solana&#8217;s price action correlated less to the number of active addresses distorted by heavy venture capital interest in the network and the collapse of its biggest backer, Alameda Research. The price of SOL recorded a linear regression of 0.01 over 33 monthly samples.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="537" height="241" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png" alt="" class="wp-image-50705" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=537 537w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=80 80w" sizes="(max-width: 537px) 100vw, 537px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


Investors derive from the above metrics that price action for ETH and AVAX relies more heavily on an uptick in active addresses, while BNB is subject to other market forces. Accessing such invaluable on-chain data in real-time through the Bloomberg Terminal equips market participants to allocate trading capital efficiently and amplify returns on investments. Monitoring the trend on active addresses is especially crucial to investors as L1 activity begins picking up again in a post-bear market environment.



<h2 class="wp-block-heading">L1 activity trends in 2023</h2>



The rebound in the market value of L1 assets does not directly reflect a resurgence in user activity on the underlying chains. Instead, it is more closely linked to a less-hostile macro environment where investor appetite gradually returns after a devastating year for financial markets.&nbsp;



L1 activity trends remain relatively low, with BNB Chain the only network seeing an increase in active addresses in 2023. The Ethereum L1 failed to add new active users but has seen an uptick in new addresses onboarding layer-2 solutions such as Optimism, Arbitrum, and Polygon. The Ethereum-native ecosystem has grown by over 20%, with addresses jumping from 330,000 to more than 420,000 in the past year. Such growth demonstrates Ethereum&#8217;s competitive moat and increasing significance as more L2 solutions come onto the scene.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="532" height="310" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png" alt="" class="wp-image-50708" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=532 532w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=448 448w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=376 376w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=80 80w" sizes="(max-width: 532px) 100vw, 532px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


As the above Bloomberg Intelligence analysis further shows, Solana and Avalanche are the biggest underperformers, with unique active addresses relatively flat since the turn of the year. Both L1s inarguably require an uptick in the number of users and transaction activity to stage a comeback to 2022 highs.



<h2 class="wp-block-heading">Using the active address ratio to spot potential mispricing opportunities</h2>



Data and analysis available on the Bloomberg Terminal also tap into the active address ratio to address one of the biggest challenges for digital asset investors – evaluating an L1 project. Efficiently comparing active addresses to an asset&#8217;s market cap allows investors to identify mispricing opportunities.



Ethereum leads the ranking for L1 assets by market cap to active addresses ratio, owing to its high level of decentralization and network properties. The switch to PoS would also help Ethereum scale its ecosystem faster through L2 solutions.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img loading="lazy" decoding="async" width="541" height="363" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png" alt="" class="wp-image-50706" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=541 541w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=383 383w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=326 326w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=80 80w" sizes="(max-width: 541px) 100vw, 541px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


However, Bloomberg&#8217;s findings reveal that Solana may be mispriced despite having a significantly higher number of active users than Avalanche. Avalanche&#8217;s market cap to active address ratio trades at a 500% premium vs. Solana. The EVM-based chain boasts only 12% of Solana&#8217;s active addresses. The metric also indicates that SOL may be undervalued and primed for an increase as bear market effects wear off.



<h3 class="wp-block-heading">Optimize L1 portfolios with data-driven insights from Bloomberg&nbsp;</h3>



Layer-1 chains play a crucial role within the digital asset industry and represent a sizable portion of many investment portfolios. Investors can optimize their exposure to the L1 ecosystem with data-driven insights from Bloomberg Intelligence, available exclusively for Bloomberg Terminal subscribers. The <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg Terminal</a> grants users access to actionable on-chain data across different L1 networks, including Ethereum, BNB Chain, Solana, and Avalanche. For instance, analyzing high-value data on active addresses equips users to gauge an L1&#8217;s competitive moat and spot potential mispricing opportunities in real time. Investors can thus optimize short-term and long-term portfolios to maximize returns on the L1 bets.



This content is sponsored by <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg</a>.



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What the Strong Recovery of L1s Means — and How Active Addresses Will Be Key To Know Where They’re Going

Sebastian Sinclair

Binance’s stablecoin (BUSD) is barely treading water.



After stablecoin issuer Paxos was directed by the New York Department of Financial Services to cease minting fresh BUSD <a href="https://blockworks.co/news/paxos-to-cease-minting-new-busd-and-end-relationship-with-binance">last month</a>, the asset has begun to exhibit signs of decay.



According to other on-chain metrics, the risk of capital flight from the world’s third-largest stablecoin project now appears greater than ever before.



Dmitry Lapidus from crypto-native investment fund Dragonfly told Blockworks that over the past few months, several individuals have begun to investigate the mechanics of BUSD after observing discrepancies in on-chain data.



Data from Glassnode shows the seven-day moving average of <a href="https://studio.glassnode.com/metrics?a=BUSD&amp;m=addresses.ActiveCount&amp;mAvg=7" target="_blank" rel="noreferrer noopener">active addresses</a> for BUSD has hit a four-month low of 96.3. The number of sending addresses has also breached a four-month low of 53.7.&nbsp;



Assets held on Binance and pairs quoted in BUSD, or assets traded in the Binance ecosystem will likely be subject to industry-wide de-risking.



Data now points to falling activity which, coupled with <a href="https://studio.glassnode.com/metrics?a=BUSD&amp;m=addresses.ReceivingCount&amp;mAvg=7" target="_blank" rel="noreferrer noopener">declining receiver addresses</a> and a market cap in freefall, could spell doom for the nascent project. Following the SEC probe, the circulating supply of BUSD has decreased by 37%.



“This likely signals the end of BUSD as we know it, given Binance was recently offloaded by its last US on/off-ramp bank in the past few weeks,” Lapidus added in relation to <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">Signature Bank</a>.



Adding to regulatory pressure, the Securities and Exchange Commission (SEC) issued Paxos a Wells Notice — an alert for potential SEC enforcement action — at roughly the same time.&nbsp;



The regulator believes BUSD constitutes a security and is therefore in violation of federal laws based on yield generated from users staking via its Earn program at 2.86%.



Both instances have raised concerns from onlookers about the way policing of crypto appears to be coming from “regulating by litigation” rather than through remedial discourse.



“It is curious why the SEC chose to target the stablecoin issuer, Paxos and not Binance,” Ivan Hong, content lead of crypto payroll firm Request Finance told Blockworks.



Coinbase was <a href="https://blockworks.co/news/coinbase-hits-back-at-sec-over-staking-as-a-service">previously served</a> a similar notice by the SEC for offering to provide a yield service for USDC, but Circle, the issuer of the stablecoin, was not. CEO <a href="https://www.bloomberg.com/news/articles/2023-03-01/coinbase-s-coin-armstrong-says-staking-product-isn-t-a-security" target="_blank" rel="noreferrer noopener">Brian Armstrong </a>defended the exchange’s staking product on Wednesday saying it should not be classified as a security.



<h2 class="wp-block-heading">Trouble for BNB Chain</h2>



Two different &#8220;BUSD&#8221; products are available to users. The first is a regulated stablecoin issued by Paxos that is backed by fiat and subject to regulatory oversight.&nbsp;



Paxos has been responsible for the creation and redemption of BUSD, since 2019, operating on the Ethereum blockchain through a licensing agreement with Binance. That agreement will come to a close in February 2023.



The second is an unregulated stablecoin called Binance-Peg BUSD, which is independently minted by Binance on other blockchains and pegged to BUSD on a one-to-one basis, allowing for token swapping across various blockchains.



The issuer will enable its new and current customers to either exchange their Ethereum-based BUSD tokens for Pax Dollars or redeem their funds in fiat. It appears that the message has not been lost on market participants.



“It became clear that the non-ETH BUSD was at multiple times undercollateralized, something that Binance eventually was forced to admit and blamed on a ‘timing mismatch,’” Lapidus said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The damage NYDFS and the SEC have done to BUSD is really staggering In the past 30 days just over $6 billion <a href="https://twitter.com/search?q=%24BUSD&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BUSD</a> has been burned &#8212; equivalent of a top 20 cryptocurrency by marketcap simply disappearing Still $11 billy BUSD in circulation, $9.7 billy of which is on Binance <a href="https://t.co/aMTiGLkxt1">pic.twitter.com/aMTiGLkxt1</a>&mdash; Andrew T (@Blockanalia) <a href="https://twitter.com/Blockanalia/status/1630274434337579008?ref_src=twsrc%5Etfw">February 27, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Andrew Thurman, a Nansen researcher, told Blockworks both the Binance exchange and its BNB chain need to pivot to a new stable asset pegged 1:1 to the US dollar.



Many of the primary liquidity pools on Binance Smart Chain are dominated by BUSD. In contrast, the disappearance of BUSD on Ethereum will have a limited impact on DeFi, with just $11 million in Aave, for example.



On the other hand, on Binance’s own network, BNB Chain, a complete ecosystem will need to adjust to an alternative liquidity source, Thurman said.



“It’s never happened in crypto and I don&#8217;t know quite what it will look like,” he said.



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The End of BUSD? On-Chain Metrics Paint a Bleak Picture

Bessie Liu

Community governance that oversees decentralized exchange Uniswap has voted in favor of deploying on Binance-backed BNB Chain via cross-chain bridge Wormhole.



A total of 500 addresses participated in the vote, casting a total of 84.8 million votes. Overall, 65.89% of votes favored the proposal and 33.57% voted against, only 0.53% chose to abstain.



This particular proposal drew attention after prominent venture capital firm a16z <a href="https://blockworks.co/news/a16z-delegated-to-group-that-opposed-its-vote-on-uniswap-for-bnb-chain">used 15 million UNI tokens</a> to vote against the proposal.



Another group that voted against the proposal was Variant Fund — an <a href="https://variant.fund/portfolio/" target="_blank" rel="noreferrer noopener">investor</a> in other blockchain networks including Polygon, Aztec Network, Scroll and Aptos. 



Because those who hold more governance tokens tend to have greater voting power, community members <a href="https://twitter.com/ChrisBlec/status/1622201701921964035" target="_blank" rel="noreferrer noopener">raised concerns</a> about how much influence venture capitalists have over decentralized protocols.



A16z roughly holds <a href="https://blockworks.co/news/a16z-delegated-to-group-that-opposed-its-vote-on-uniswap-for-bnb-chain">64 million UNI tokens</a>, with a majority of the tokens delegated to third-party participants.&nbsp;



Despite this, not all a16z delegates voted against the proposal. <a href="https://www.michiganblockchain.org/" target="_blank" rel="noreferrer noopener">Blockchain at Michigan</a>, for example, used 3.5 million UNI tokens to vote in favor of the proposal.



<a href="https://www.blockworksresearch.com/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> analyst <a href="https://twitter.com/MattFiebach" target="_blank" rel="noreferrer noopener">Matt Fiebach</a> believes that this is a positive sign for decentralization in protocols.



“The vote&#8217;s result against a16z shines a positive light on the VC&#8217;s decision to delegate tokens out to unbiased parties and highlights the benefits of decentralized governance,” Fiebach said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Thank you to everyone who voted on the Uniswap V3 BNB Chain Deployment — we’re honored by the trust the community has put in us and look forward to helping <a href="https://twitter.com/Uniswap?ref_src=twsrc%5Etfw">@Uniswap</a> go xChain to <a href="https://twitter.com/BNBCHAIN?ref_src=twsrc%5Etfw">@BNBCHAIN</a> with Wormhole.<a href="https://t.co/RU46DVC6EC">https://t.co/RU46DVC6EC</a>&mdash; Wormhole🌪 (@wormholecrypto) <a href="https://twitter.com/wormholecrypto/status/1624051141033033729?ref_src=twsrc%5Etfw">February 10, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2 class="wp-block-heading">Deploying everywhere, for now</h2>



BNB Chain is not the only blockchain network that Uniswap is looking to deploy on. Governance proposals and discussions about deploying the decentralized exchange (DEX) onto <a href="https://gov.uniswap.org/t/governance-proposal-deploy-uniswap-v3-on-moonbeam/16759" target="_blank" rel="noreferrer noopener">Moonbeam</a>, <a href="https://gov.uniswap.org/t/deploy-uniswap-v3-to-boba-network/18018" target="_blank" rel="noreferrer noopener">Boba Network</a> and <a href="https://gov.uniswap.org/t/rfc-deploy-uniswap-v3-on-starknet/19938" target="_blank" rel="noreferrer noopener">StarkNet</a> are all in motion.



This is likely because Uniswap v3’s business source license (BSL) will <a href="https://blockworks.co/news/uniswap-multichain-future">expire in the coming months</a>, Getty Hill, the co-founder of the delegate, GFX Labs, previously told Blockworks.



To prevent other protocols from copying Uniswap v3’s code, Hill believes that Uniswap governance may have adopted a “deploy everywhere” strategy.



“It’s much harder to fork the protocol if there’s already a Uniswap v3 deployment there,” Hill said.



Deploying on other chains has been quite successful for Uniswap thus far. Three months after launching on Polygon, the DEX captured almost 50% of its market share.&nbsp;



Now that the vote has passed to deploy on the BNB chain, Fiebach notes that Uniswap will likely gain an even larger portion of the existing DEX market.



“It will be interesting to see how the proprietary UNI v3 concentrated liquidity model becoming open source on Apr. 1 impacts their dominance,” Fiebach said.



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Uniswap Coming to BNB Chain? Governance Says Yes

Venture capital firm <a href="https://blockworks.co/tag/a16z">a16z</a> voted against a governance proposal on Friday that, if passed, would deploy Uniswap V3 to Binance’s BNB Chain, connected to Ethereum via the cross-chain bridging solution Wormhole.



The vote is active for a total of one week, ending Feb. 10.



Wormhole, initially created by Certus One, is an interoperability protocol that allows users to bridge assets across blockchains.&nbsp;



The <a href="https://www.tally.xyz/gov/uniswap/proposal/31">proposal</a> will later seek to provide Uniswap V3 users the ability to partake in Uniswap DAO’s Ethereum-based governance on BNB Chain.



The bridge built atop the Wormhole protocol, previously lost <a href="https://blockworks.co/news/in-second-largest-defi-hack-ever-blockchain-bridge-loses-320m-ether">$325 million</a> in DeFi’s second-largest-ever exploit, at the beginning of last year, and <a href="https://wormholecrypto.medium.com/wormhole-protocol-vs-portal-bridge-whats-the-difference-a9ad98696e64">rebranded</a> to Portal.



Portal is a major competitor to LayerZero’s offering — an a16z-backed company whose solution the venture capital firm is hoping will handle the job instead. A16z, Sequoia Capital and FTX <a href="https://www.crunchbase.com/funding_round/layerzero-labs-series-a--7212c4e5">led</a> a $135 million investment round into LayerZero in March of last year with a valuation of $1 billion.



A16z’s 15 million votes cast against the measure has led some <a href="https://twitter.com/ChrisBlec/status/1622201701921964035" target="_blank" rel="noreferrer noopener">skeptics</a> to question the ability of Uniswap governance&#8217;s ability to act in the protocol&#8217;s best interest.



Typically, those holding more tokens have a greater share of voting power and are able to greatly affect the direction of a given proposal.



In a16z&#8217;s case, the firm owns roughly 64 million UNI, but many of those tokens are delegated to third parties. For instance, the venture fund <a href="https://twitter.com/UMichBlockchain/status/1402832670191669255" target="_blank" rel="noreferrer noopener">has delegated</a> to a blockchain group at the University of Michigan, which was one of the governance representatives voting in favor of the proposal.



The ‘for’ votes outnumber the ‘against’ by 62% to 38% as of Monday at 9:00 am ET, but a quorum threshold has not yet been reached.



Blockworks attempted to contact a16z, but did not receive a reply by press time.



<h2 class="wp-block-heading">Bridging Uniswap</h2>



After a prior debate and <a href="https://snapshot.org/#/uniswap/proposal/0x6b8df360fdf73085b21fdf5eef9f85916fbde95621a3d454cb20fbe545ffc852" target="_blank" rel="noreferrer noopener">Snapshot vote</a>, the community selected the Wormhole bridge for the Uniswap V3 deployment on the BNB Chain, receiving 28 million votes. The solution provided by the LayerZero team came in second at 17 million.



Uniswap’s aim is to capitalize on the growing interest in DeFi within the Binance ecosystem by allowing more capital to flow across various ecosystems, according to the proposal on Tally. Wormhole is designed to shore up the security involved in the bridging of digital assets, despite its exploit woes last year.



Total value locked on BNB Chain has ballooned roughly $1 billion this year to $5 billion, data at <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFi Llama show</a>. That still pales in comparison to Ethereum’s $29 billion claim to the overall $48.5 billion locked across leading DeFi protocols. Still, authors of the proposal said Friday that Uniswap should be pursuing the more than 750,000 weekly users on BNB Chain.



BNB Chain has a large and growing user base, fast transaction speeds, low fees, staking, cross-chain support and an active community making it a suitable platform for Uniswap v3, they said.



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A16z Delegated to Group that Opposed Its Vote on Uniswap for BNB Chain

Shalini Nagarajan

Crypto startup Ankr says a former employee instigated the <a href="https://blockworks.co/news/binance-chain-apps-5m-hack" target="_blank" rel="noreferrer noopener">$5 million theft</a> from its platform earlier this month.



A malicious hacker exploited a smart contract for one of Ankr’s staking rewards tokens, aBNBc, on Dec. 2. They&#8217;d manipulated a bug in its code that enabled <a href="https://twitter.com/peckshield/status/1598508401755144196" target="_blank" rel="noreferrer noopener">unlimited minting</a> of the token, deployed to Binance-branded BNB Chain.



In a Tuesday <a href="https://www.ankr.com/blog/after-action-report-our-findings-from-abnbc-token-exploit/" target="_blank" rel="noreferrer noopener">blog</a>, the decentralized finance protocol said a former team member was behind the attack. It didn’t name or identify the individual. 



“A former team member (who is no longer with Ankr) acted maliciously to conduct a supply chain attack, inserting a malicious code package that was able to compromise our private key once a legitimate update was made,” Ankr said.



Crypto intelligence firm Arkham had already <a href="https://twitter.com/ArkhamIntel/status/1598620203457208320" target="_blank" rel="noreferrer noopener">noted</a> the possibility of an inside job after on-chain sleuths linked related transactions to an Ankr deployer.



Ankr added: “Unfortunately, internal bad actors can affect any protocol and we are working on shoring up internal HR processes and safety measures to strengthen our security posture going forward.”&nbsp;



The team is now working with law enforcement to potentially prosecute the former team member.



Previously, Ankr <a href="https://blockworks.co/news/ankr-exploit-causes-collateral-damage" target="_blank" rel="noreferrer noopener">explained</a> the attacker “minted an excess of aBNBc out of thin air” by uploading a new contract that allowed minting without authorization checks. They proceeded to swap it for other tokens on decentralized exchanges.&nbsp;



Overall, the attacker minted 60 trillion aBNBc across six transactions. They swapped some for USDC before bridging the stablecoins to Ethereum and washing them through crypto mixer Tornado Cash.



<h3 class="wp-block-heading">Ankr reimbursed affected users with crypto</h3>



Shortly after the Ankr hack, a second exploit occurred on staking platform Helio, which hadn’t updated Ankr-related token prices despite aBNBc dropping more than 99%, from $303 to $1.54.



This allowed one user to borrow $16 million worth of its native stablecoin HAY by using affected Ankr tokens as collateral. They then swapped those funds for $15 million in BinanceUSD (BUSD), <a href="https://twitter.com/BlockSecTeam/status/1598625878455373824" target="_blank" rel="noreferrer noopener">according</a> to blockchain analysis firm BlockSec, before sending the haul onto Binance.



Ankr later executed a recovery plan for the community, which involved compensating its liquidity providers, lenders and other users affected by the exploit.&nbsp;



The team also helped stabilize HAY after the stablecoin depegged, although the token is yet to fully regain its intended dollar value, now trading at a touch over $0.99.



In any case, Ankr hopes multi-sig authentication for updates will ensure similar attacks are avoided moving forward. The team is also implementing background checks for employees and reviewing access rights.



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Ankr Confirms $5M Crypto Hack Was An Inside Job

Decentralized Web3 infrastructure provider Ankr sought to reassure its community Friday with an initial response to the <a href="https://blockworks.co/news/binance-chain-apps-5m-hack" target="_blank" rel="noreferrer noopener">theft of at least $5.5 million</a> from BNB Chain liquidity pools and money markets.&nbsp;



The team confirmed that Ankr’s other products — including validators, RPC nodes, and AppChain services — were not affected. That will come as a relief to holders of Ankr’s other larger staking derivatives, notably aETHc — Ankr staked ether — which carries a market cap of about $68 million.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Update on our aBNB Token Exploit: We are grateful to our community of DEXs, exchanges, and protocols that all helped us end the exploit quickly. We will use reserves to compensate liquidity providers for the aBNBc pools.<a href="https://t.co/B2yNWBAQdX">https://t.co/B2yNWBAQdX</a>&mdash; Ankr (@ankr) <a href="https://twitter.com/ankr/status/1598768146088742912?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The attacker minted a total of 60 trillion aBNBc across 6 different transactions. The thief then used the minted, but unbacked tokens to drain liquidity from decentralized exchanges on the <a href="https://blockworks.co/price/bnb">BNB Chain</a>. After turning around and buying the depressed aBNBc the attacker was able to raid borrowing and lending protocol Helio by withdrawing $16 million in HAY, the protocol’s custom stablecoin and swapping it for $15.5 million <a href="https://blockworks.co/price/busd">BUSD</a>, the Binance stablecoin issued by Paxos.



Prior to the exploit, Helio had $90 million in Total Value Locked, <a href="https://defillama.com/protocol/helio-protocol" target="_blank" rel="noreferrer noopener">according to DeFiLlama</a>.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/ The team at Helio Protocol is aware of the situation and we are closely working with <a href="https://twitter.com/ankr?ref_src=twsrc%5Etfw">@Ankr</a> to manage the situation and to support our community during this difficult time.&mdash; Helio Protocol ($HAY) 🔶 (@Helio_Money) <a href="https://twitter.com/Helio_Money/status/1598710451285598208?ref_src=twsrc%5Etfw">December 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“Hacks and exploits from bad actors like this are an unfortunate possibility in Web3, even with every attention to detail in security processes — but we were well prepared,” Co-Founder &amp; CEO Chandler Song, said in <a href="https://www.ankr.com/blog/the-abnbc-token-report/" target="_blank" rel="noreferrer noopener">a statement</a>.



A recommended “action plan” explained how users of aBNBc can be compensated through a new ankrBNB token that will be minted and airdropped based on a pre-exploit snapshot of on-chain data.



While the attack apparently stems from malicious use of the private key for the aBNBc smart contract deployer, it&#8217;s unclear exactly how the key was compromised. Industry <a href="https://blog.openzeppelin.com/protect-your-users-with-smart-contract-timelocks/" target="_blank" rel="noreferrer noopener">best practices call for</a> multisignature wallets and timelocks on upgradeable smart contracts, to prevent this type of attack.



Representatives from Ankr did not respond to Blockworks request for comment.



Other providers of liquid staked BNB such as pSTAKE <a href="https://twitter.com/pSTAKE_stkBNB/status/1598540733044359168" target="_blank" rel="noreferrer noopener">use multisigs</a> to protect sensitive contracts, and restrict access to token minting functions, while fully decentralized dapps such as Uniswap on Ethereum are not upgradeable at all.



The full extent of the collateral damage is not yet clear, but the Ankr team <a href="https://twitter.com/ankr/status/1598803911443468289" target="_blank" rel="noreferrer noopener">expressed the intent</a> to resolve losses incurred by customers of related DeFi dapps.



For example, Ankr will cover bad debt incurred by Helio Protocol, pending the outcome of ongoing discussions, <a href="https://twitter.com/Helio_Money/status/1598710457711198208" target="_blank" rel="noreferrer noopener">according to</a> the latter’s official Twitter account.



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Ankr Exploit Causes Collateral Damage

<div id="highlights-block_63408f996c97c" class="highlights">
 <ul>
 <li>BNB Chain contacted community validators to stop incident from spreading</li>
 <li>“Either be fully decentralized, or be centralized enough to have responsibility for responding to security incidents,” OpenZeppelin head of solutions architecture says</li>
 </ul>
 
</div>



Following attackers <a href="https://cms.blockworks.co/binance-pauses-trading-of-native-token/" target="_blank" rel="noreferrer noopener">exploiting Binance’s BNB Chain</a> and withdrawing 2 million BNB, the crypto industry is now grappling with questions of decentralization, responses to security incidents and the prevalence of hacks.



Operators and protocols in the space must choose to become fully decentralized or be better prepared to respond to hacks, said Michael Lewellen, head of solutions architecture at blockchain security firm <a href="https://www.openzeppelin.com/" target="_blank" rel="noreferrer noopener">OpenZeppelin</a>.



BNB Chain said <a href="https://www.bnbchain.org/en/blog/bnb-chain-ecosystem-update/" target="_blank" rel="noreferrer noopener">in a statement Friday</a> that the latest exploit affected BSC Token Hub — the native cross-chain bridge between BNB Beacon Chain and BNB Smart Chain.



Blockchain analytics unit <a href="https://blog.chainalysis.com/reports/cross-chain-bridge-hacks-2022/?utm_campaign=twitter&amp;utm_source=OrganicSocial&amp;utm_content=Thread" target="_blank" rel="noreferrer noopener">Chainalysis estimated in August</a> that $2 billion worth of crypto had been stolen across 13 cross-chain bridge hacks. Attacks on bridges accounted for 69% of total funds stolen this year, the company said at the time.



“Decentralized chains are not designed to be stopped, but by contacting community validators one by one, we were able to stop the incident from spreading,” BNB Chain said in a statement Friday.



BNB Smart Chain has 26 active validators and 44 in total, the network stated, adding that it seeks to expand the validators to boost <a href="https://cms.blockworks.co/what-it-takes-to-halt-a-decentralized-blockchain-like-binance/" target="_blank" rel="noreferrer noopener">further decentralization</a>.



Though BNB Chain reported “the vast majority of the funds remain under control,” a spokesperson did not immediately return a request for further comment.&nbsp;



The latest hack is likely to spur operators to address the lack of automated response to security incidents in the crypto space, Lewellen told Blockworks.&nbsp;



Founded in 2015, OpenZeppelin has a platform allowing users to manage smart contract administration, such as access controls, upgrades and pausing. The company safeguards tens of billions of dollars in funds for organizations such as Coinbase and the Ethereum Foundation.



Keep reading for excerpts from Blockworks’ interview with Lewellen following the hack.



Blockworks: What do you make of this latest hack on the BNB Chain?



Lewellen: This is actually kind of a weird one, as this is a bug that was in a pre-compiled smart contract.



With Binance Chain, they were just adding a lot of features into the native protocol to support smart contracts, and that’s where the bug ended up coming in. So I think there needs to be a question of whether these sorts of changes should be in a native protocol. Maybe it should be contained within a smart contract and kept outside of the scope of the protocol because these things are risky.



We don’t know how the bug appeared inside of the protocol or its original source. But where code is — and the level of safety pieces of code have depending on what layer they’re in — need to be better.



These proof-of-authority chains and bridges kind of complicate that. It’s no longer a clear hierarchy. There’s now a lot of different layers happening in parallel that people need to be a lot more conscious of.&nbsp;&nbsp;&nbsp;



Blockworks: How could the response to this hack have been better?



Lewellen: While I think they responded well overall here, there’s a larger question of…was this really the best that could be done if that role was embraced.



I can’t speak to what the Binance Chain validator community does or how they coordinate or practice for these sorts of things…but they’ve obviously practiced it once now.



I’m speaking as someone from the outside, but seeing other DeFi projects respond to this as their client, I think there could be a lot more diligence and embracing the role of someone that has the ability to respond to security incidents.&nbsp;



And if they don’t have the role, they just need to be very up-front with that. Whether there’s a hesitancy to utilize it in some cases and maybe not in others, right now obviously it exists and I think it could be done better in the future if we learn a lot from this. &nbsp;&nbsp;



Blockworks: Can you point to any examples of an effective automated instant response to a hack?



Lewellen: We’re still in the early stages. I think we’re seeing teams that are getting better at detecting things and responding, but I think honestly these hacks have been occurring on bridges that I don’t think have been embracing that same level of due diligence.



I don’t think we’ve seen a good case for that. We know it’s possible, we’ve done the simulations at OpenZeppelin to know it’s feasible, and we’ve built tools to address it. But ironically I think the teams best prepared for that might be the teams that are least susceptible to being hacked in the first place.



The people that are being hacked the most are also the ones that I think are the least prepared to be hacked.



Blockworks: What sorts of tools or practices should be used to quickly defend against hacks?&nbsp;&nbsp;



Lewellen: What [operators] really need is something that gives you immediate notification, or basically something that is watching everything on-chain…analyzing it and then determining, “were any risks exposed here?”



If large amounts of funds get moved, it’s probably fine and part of the day-to-day operations, but if it falls out of the norm…[it’s important to have] immediate notification of that.



If you can go further and detect things that should never occur, such as money moving out of a vault that should be locked or more tokens than what should be in the token supply existing…you know something’s happening. If not getting people immediately on call to respond, maybe even automating some of the ways that you might immediately cut down some of the exit ramps…or getting your validators to be ready to respond and maybe even doing drills with them.



Blockworks: What is the key for operators as they seek to address security risks going forward?&nbsp;



Lewellen: I think it’s going to be becoming a little bit more honest with the role of different operators and protocols and what the administrative powers are.&nbsp;



With the Ethereum blockchain, the way that Binance Chain responded would not have been possible for Ethereum, but Ethereum also creates this expectation that the chain isn’t going to step in and save you.



If you’re going to have that sort of approach where you have a network where people can respond, either embrace it or move away from it. Either be fully decentralized, or be centralized enough to have responsibility for responding to security incidents. Embrace the role fully by trying to be as prepared as possible and telling node operators for your network that this will be their responsibility.



This interview has been edited for clarity and brevity.



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After BNB Chain Hack, Operators Must Face Question of Decentralization

David Canellis

<div id="highlights-block_634087d3458b6" class="highlights">
 <ul>
 <li> BNB Chain operates with far fewer validators than Etheruem or Bitcoin, allowing Binance greater control over the network</li>
 <li>The speed at which participants could pause the network is in significant contrast from more decentralized blockchains</li>
 </ul>
 
</div>



BNB Chain, the branded blockchain deployed by the world’s top crypto exchange, Binance, was halted earlier today in response to a debilitating bridge hack worth some $566 million.



That figure was eventually <a href="https://cms.blockworks.co/binance-pauses-trading-of-native-token/" target="_blank" rel="noreferrer noopener">reduced</a> to just $100 million thanks to quick coordination among BNB Chain’s 26 <a href="http://bnbchain.org/en/staking" target="_blank" rel="noreferrer noopener">validators</a>, 19 of which came together to halt the chain before the hacker(s) could successfully smuggle most of the stolen crypto out of the Binance ecosystem.



Validators <a href="https://www.coindesk.com/markets/2022/10/07/bnb-smart-chain-resumes-operations-after-100m-exploit/" target="_blank" rel="noreferrer noopener">pushed</a> an update hours later and brought the network back online (only 21 BNB Chain validators are ever active at one time, and there&#8217;s 26 currently with potential to participate).



Unlike Bitcoin and Ethereum, which both feature thousands — and even tens of thousands — of network participants all working together to process transactions, BNB Chain strategically decided for a more centralized structure with far fewer individuals in charge.



BNB Chain’s “proof-of-staked authority” echoes many other consensus styles employed by blockchains, such as EOS’ “delegated proof-of-stake.”&nbsp;



In standard proof-of-stake systems, token holders are given more power depending on the value of tokens in their wallets; in Binance’s case, BNB token holders use their balances to elect to trusted third parties.



This awards validators both lucrative revenues associated with keeping the network running smoothly and total effective control over the functionality of the network (although there are penalties for operating out of bounds).



Generally, fewer validators allow for higher throughput: It takes much longer for data to seep through a network consisting of thousands of nodes than it does for two dozen servers to agree on which transactions to approve.



There’s also arguably a far more important benefit of such a smaller set of network validators: It&#8217;s much easier to coordinate between them and thus exert control over the network, as we’ve now seen.



<h3 class="wp-block-heading">BNB Chain entity exerted control over Binance blockchain</h3>



BNB Chain was quick to laud its ability to coordinate between its validators and switch off the network, despite some degree of chaos triggered across its DeFi apps, which <a href="https://defillama.com/chain/BSC" target="_blank" rel="noreferrer noopener">currently</a> have $5.45 billion in digital assets in play.



Blockchain engineer Zak Cole, chief technology officer at Web3 trading platform Slingshot Finance, found the speed at which validators banded together to suspend operations concerning.



“It&#8217;s kind of sketchy. I mean, halting a chain should require a huge amount of coordination between disparate validators and ideally, for the sake of censorship prevention, you don&#8217;t really know who the validators are.”



Blockworks has reached out to Binance and many of the 19 validators involved in halting the network to learn more about the process, and will update this piece as we hear back.



Coinbase, whose Cloud division maintains a BNB Chain validator, directed us to a BNB Chain <a href="https://www.bnbchain.org/en/blog/bnb-chain-ecosystem-update/" target="_blank" rel="noreferrer noopener">blog</a> post, which said that it was able to coordinate between network validators by contacting them all individually (“one by one”) and touted their quick consensus despite the elected stewards operating in different time zones.&nbsp;



This suggests a simple group chat wasn’t involved, with the wording of BNB Chain&#8217;s post indicating that each validator was encouraged to halt the chain without input from the others.



“I think it just nods towards centralization, that somebody can send a message to some group and essentially shut down a blockchain. I don&#8217;t know if that meets the definition of a blockchain by my standards,” Cole said.&nbsp;



One could argue that Binance opted for a smaller validator set to make it easier to navigate extreme circumstances such as hacks and other security incidents, however Cole highlighted that ease of coordination is not written into the codebase: Those effects are purely social.



<h3 class="wp-block-heading">BNB Chain is cheap, very cheap</h3>



With this in mind, Binance, by extension of BNB Chain, in this case is somewhat more akin to a tech company than a traditional blockchain network — almost like Facebook deciding to take the site down for maintenance.&nbsp;



Cole brought up the Ethereum ecosystem’s lengthy debate over emergency measures following The DAO hack in 2016, in which $60 million in ether was stolen.&nbsp;



That process took weeks of serious decision-making, Cole noted, with Ethereum participants eventually deciding to rollback the chain via a hard fork (not a chain halt), allowing the transactions to be undone and stolen money returned to The DAO investors.



Such a process is a reflection of the number of network participants involved in Ethereum governance when compared to Binance.&nbsp;



“I think the higher the number of separate participants, the better off in terms of decentralization. Such a low validator set [with BNB Chain], I think, is kind of inherently insecure,” Cole said.



So, what would it take to decentralize BNB Chain? Cole suggested allowing anyone to run a validator and participate in consensus, regardless of whether they’re elected, similar to the purely permissionless nature of Ethereum and Bitcoin.



But Cole expressed that BNB Chain boasts a slightly different use case: It’s a centralized chain built to be much cheaper than Ethereum. Anyone can deploy a contract — and thus launch a token — on BNB Chain and begin selling it to degens across hundreds of BNB-powered Uniswap forks.



It’s similarly true that anyone can deploy tokens on Ethereum and sell them on the actual Uniswap. But on BNB Chain, it costs a fraction of a cent versus dollars, making it cheaper by a magnitude of 100 at least.



“People are making choices based on performance, security and decentralization, and they&#8217;re choosing performance over decentralization,” Cole said. “I don&#8217;t think that presents a significant value proposition necessarily.”



Article updated to make distinction between BNB Chain and Binance.



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What It Takes to Halt a ‘Decentralized’ Blockchain Like Binance

Casey Wagner

<div id="highlights-block_634055fcc4522" class="highlights">
 <ul>
 <li>Crypto’s rally earlier in the week proved to be short lived</li>
 <li>Jobs data and fears over the latest crypto hack had investors weary</li>
 </ul>
 
</div>



Even after hints earlier in the week that a turnaround was coming, cryptocurrencies and equities are lined up to end another week in the red following jobs data that suggests rising interest rates will likely continue and ongoing turmoil in the digital asset space.&nbsp;



It was a sea of red across the board midway through the trading session Friday. Bitcoin and ether lost 2% and 1.5%, respectively. The S&amp;P 500 and tech-heavy Nasdaq posted 2% and 3% losses, respectively.&nbsp;



Macroeconomic data and further trouble in the crypto world contributed to the decline, analysts said. Cryptos were <a href="https://cms.blockworks.co/cryptos-equities-slide-on-central-bank-decisions-merge-aftermath/" target="_blank" rel="noreferrer noopener">already suffering</a> from widespread volatility in equity markets, fueled by increasing inflation, calls for central banks to pivot and fret over how high interest rates might go.



News of a <a href="https://cms.blockworks.co/binance-pauses-trading-of-native-token/" target="_blank" rel="noreferrer noopener">hack on Binance’s BNB Chain</a>, coupled with positive news on the labor front and a strong US dollar, put an end to crypto’s slight rally earlier in the week.&nbsp;



BNB Chain noted on <a href="https://twitter.com/BNBCHAIN/status/1578148078636650496" target="_blank" rel="noreferrer noopener">Twitter</a> that it had paused its network, sending the price of Binance Coin (BNB) lower. The cryptoasset traded for as little as $279 by 7:50 pm ET. By Friday afternoon, the price had recovered to around $282, according to <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">data compiled by Blockworks</a>.



“BNB dropped less than 5%,” Changpeng Zhao, often known as CZ, said Friday morning during an appearance on CNBC&#8217;s Squawk Box. CZ added that his team has now minimized the damage to “less than $100 million.”&nbsp;



On the macro side, Friday’s jobs data showed that unemployment fell to 3.5% in September, down from 3.7% in August. It’s a sign traders took to mean a Federal Reserve pivot is a long way off, Craig Erlam, senior market analyst at Oanda, said.



“Even earlier in the week when equity markets were rallying strongly, there was always a sense that the jobs report could spoil the party,” Erlam said. “And not because it could point to cracks appearing in the labor market, quite the opposite in fact.”



The market seems to be thinking that poor economic data, such as rising unemployment or poor manufacturing PMI, as seen on Tuesday, will leave the Fed with no choice but to back off its rate raising policy.&nbsp;



“The labor market until now has been very resilient and while cracks appearing will get the attention of the central bank, it will take much more than that to force it to slow down,” Erlam said. “What&#8217;s more, without inflation indicators consistently pointing to lower price growth, policymakers will be hesitant to ease up sooner.”&nbsp;



The central bank’s next policy meeting is scheduled for November.





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Stocks, Cryptos Falter on Jobs Data, Binance Hack Fallout

<div id="highlights-block_633f596c79f86" class="highlights">
 <ul>
 <li>Early indications are that Binance’s network has been hacked for hundreds of millions of dollars</li>
 <li>According to on-chain analysis by Blockworks’ Research, the attacker, or attackers, have managed to “bridge out” to several other chains, including Avalanche and Polygon</li>
 </ul>
 
</div>



Binance&#8217;s network, BNB Chain, has been hacked for potentially hundreds of millions of dollars in what the cryptocurrency exchange initially dubbed a “<a href="https://twitter.com/BNBCHAIN/status/1578152039455916033" target="_blank" rel="noreferrer noopener">potential exploit</a>” of a cross-chain bridge and <a href="https://www.bnbchain.org/en/blog/bnb-chain-ecosystem-update/" target="_blank" rel="noreferrer noopener">later confirmed</a>, promising a full post-mortem.



Binance <a href="https://twitter.com/BNBCHAIN/status/1578148078636650496">on Twitter said</a> it had paused its network, sending the price of Binance Coin (BNB) lower on the news, as the cryptoasset changed hands for as little as $279 by 7:50 pm ET. By Friday morning, the price had recovered to around $285, according to <a href="https://cms.blockworks.co/prices/" target="_blank" rel="noreferrer noopener">data compiled by Blockworks</a>.



&#8220;An exploit on a cross-chain bridge, BSC Token Hub, resulted in extra BNB. We have asked all validators to temporarily suspend BSC. The issue is contained now. Your funds are safe. We apologize for the inconvenience and will provide further updates accordingly,&#8221; Binance CEO Changpeng Zhao later confirmed via <a href="https://twitter.com/cz_binance/status/1578171072067031042?s=20&amp;t=m8axilRl2cUregJfdM4nkg" target="_blank" rel="noreferrer noopener">Twitter</a>.



BSC Token Hub is the bridge between BNB Beacon Chain (BEP2) and BNB Chain (BEP20 or BSC). Binance had earlier said it was temporarily pausing its chain due to “irregular activity.”



<a href="https://twitter.com/milesdeutscher/status/1578141875261026305?s=20&amp;t=R9nGDxMj3se2cn-5DarpKA" target="_blank" rel="noreferrer noopener">Eagle-eyed Twitter users</a> appeared to be the first to identify roughly two million BNB — more than $566 million — that had been transferred to an apparent <a href="https://debank.com/profile/0x489a8756c18c0b8b24ec2a2b9ff3d4d447f79bec" target="_blank" rel="noreferrer noopener">attacker’s address</a> who has so far managed to bridge out somewhere in the neighborhood of $110 million.



In a post on <a href="https://www.reddit.com/r/bnbchainofficial/comments/xxjkpy/temporary_pause_of_bsc/" target="_blank" rel="noreferrer noopener">Reddit</a> at around 7:15 pm ET, Binance thanked node service providers for their &#8220;quick and attentive response.&#8221;



Those providers include Hash, Neptune, TW Staking, BSCScan, Legend, CertiK, Figment, NodeReal, Namelix, Defibit, Fuji, InfStones, MathWallet, Pexmons, Ankr, BNB48 Club, Avengers, Tranchess and Coinbase Cloud.



<a href="https://twitter.com/BNBCHAIN/status/1578194090637742080?s=20&amp;t=fYYjv_77AUh_RSTVOsYT5Q" target="_blank" rel="noreferrer noopener">Stewards of BNB Chain</a> are now requesting BSC Validators to get in touch with them over the next few hours to plan a node upgrade.



<h3 class="wp-block-heading">Total losses could prove to be much less</h3>



The&nbsp;wallet address, confirmed by Ryan West, a Blockworks’ Research analyst, shows the wallet has transferred roughly $53 million of BNB to ether (ETH), plus $48 million to the Fantom blockchain, as well as additional funds to the Avalanche, Optimism and Polygon protocols.



“Thanks to the community and our internal and external security partners, an estimated $7M has already been frozen,” Binance <a href="https://twitter.com/BNBCHAIN/status/1578163230790520832?s=20&amp;t=SNBnAW6TjH74VYta0Tn7Hg" target="_blank" rel="noreferrer noopener">tweeted</a> shortly after advising users of the exploit.



The same wallet belonging to the attacker is blacklisted from Tether, per West.



Roughly $433 million, 80% of the total, remained on the BNB Chain a few hours after the stock market’s closing bell in New York, cybersecurity firm Halborn told Blockworks. Counting these funds, it would mark the industry’s second-largest hack, following the <a href="https://cms.blockworks.co/sky-mavis-ronin-network-bridge-exploited-for-over-600m/" target="_blank" rel="noreferrer noopener">Axie Infinity Ronin Bridge exploit in March</a> for $625 million.



According to on-chain analysis, the attacker used the cross-chain bridge protocol <a href="https://bscscan.com/tx/0xa7beda0c43f45d57efd88fb3ccaf26e1f4ec60706b10556897717a3288ee9f03" target="_blank" rel="noreferrer noopener">Stargate</a> to transfer out. Binance representatives did not immediately return a request for comment.



BNB Chain, via Twitter, <a href="https://twitter.com/BNBCHAIN/status/1578163230790520832" target="_blank" rel="noreferrer noopener">puts the loss</a> — funds moved off of the halted BNB chain — at between $70 million and $80 million.



<h3 class="wp-block-heading">Understanding the mechanics of the exploit</h3>



Paradigm researcher Sam Sun, better known as @Samczsun on Twitter, published a detailed analysis of the exploit explaining how the attacker manipulated a bug in the Binance Bridge.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">In summary, there was a bug in the way that the Binance Bridge verified proofs which could have allowed attackers to forge arbitrary messages. Fortunately, the attacker here only forged two messages, but the damage could have been far worse&mdash; samczsun (@samczsun) <a href="https://twitter.com/samczsun/status/1578185275062132736?ref_src=twsrc%5Etfw">October 7, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



&#8220;The threat actor did not need any inside information in order to effectuate this attack,&#8221; David Schwed, chief operating officer at Halborn, told Blockworks via Telegram, adding &#8220;all information required to exploit was publicly available.&#8221;



<h3 class="wp-block-heading">Next steps for BNB community</h3>



BNB Chain <a href="https://www.bnbchain.org/en/blog/bnb-chain-ecosystem-update/" target="_blank" rel="noreferrer noopener">posted an update</a> at around 5 am ET, calling the exploit “a sophisticated forging of the low level proof into one common library.”



Although the BNB Chain is paused, the bug remains active and will need to be fixed before full service can be restored.



The blog post calls for an on-chain governance vote to assess the next steps in four areas:



<ol><li>What to do with the hacked funds — freeze or not to freeze?</li><li>Whether to use BNB auto-burn to cover the remaining hacked funds, or not?</li><li>A whitehat program for future bugs found, $1 million for each significant bug found.</li><li>A bounty for catching hackers, up to 10% of the recovered funds.</li></ol>



To safely enable such a vote, the “validator voting function for general opinions will be switched on in the next few days via an upgrade of BNB Beacon Chain,&#8221; the post said.



No specific timeline is set for reactivation of the chain.



The simple fact that the BNB Chain could be halted in this manner calls into question the decentralization of the project, which has only 26 active validators. BNB Chain acknowledged the concern, but portrayed it as a strength.



“Decentralized chains are not designed to be stopped, but by contacting community validators one by one, we were able to stop the incident from spreading,” they said, adding “This delayed closure, but we were able to minimize the loss.”



Macauley Peterson contributed reporting.



This story was updated on Oct. 7 at 5:30 am ET and 8:57 am ET.



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Binance’s Crypto Dips on Heels of Confirmed Exploit on BNB Chain

Jacquelyn Melinek

<div id="highlights-block_620beb8ed6394" class="highlights">
 <ul>
 <li>BNB, formerly Binance Coin, now stands for “Build and Build” as the blockchain token for the BNB chain</li>
 <li>“Binance doesn’t own the chain, it’s just a contributor in the community and will continue to do so, but the BNB chain is completely running on its own,” Zhao said</li>
 </ul>
 
</div>



Cryptocurrency exchange Binance has rebranded the blockchain powering its platform in a bid to emphasize decentralization.



In the move, Binance’s CEO Changpeng Zhao <a href="https://www.youtube.com/watch?v=bTbsuE60naI" target="_blank" rel="noreferrer noopener">said</a> in a webinar Tuesday that Binance Smart Chain (BSC) is now BNB Chain.



“People always think of Binance Smart Chain, because it carries the Binance word, as something owned by Binance,” Zhao said. “We’ve done a lot of work to decentralize it, and we also realize BNB is beyond Binance. It’s bigger than Binance…BNB is its own living, breathing ecosystem with the BNB Chain.”



<meta charset="utf-8">Meanwhile, the SEC is examining the relationship between Binance’s US arm and two trading firms, Sigma Chain AG and Merit Peak Ltd., that have ties to Zhao, people familiar with the probe <a href="https://www.wsj.com/articles/sec-probes-trading-affiliates-of-crypto-giant-binances-u-s-arm-11644948162?st=oiyo5wi9j7jhzll&amp;reflink=desktopwebshare_permalink" target="_blank" rel="noreferrer noopener">told</a> The Wall Street Journal.



When the exchange&#8217;s blockchain was launched 18 months ago, its creators didn’t consider its Binance branding for what was then just an experiment, according to Samy Karim, who holds the title of BNB Chain coordinator.



“When we started off, we definitely didn’t expect BSC, now BNB chain, to grow to where it is today,” Karim said. “It shows the level of underserved demand there really was, and this type of infrastructure really helped to drive massive new user growth in decentralized applications that wasn’t really happening before.”



BNB, formerly Binance Coin, now stands for “Build and Build” as the blockchain token for the BNB chain.



The chain is a community-driven, decentralized blockchain powered by the token and consists of BNB Beacon Chain and BNB Smart Chain (BSC), which is compatible with the Ethereum Virtual Machine (EVM). As of Tuesday, the total value locked (TVL) in BNB was 25 billion, according to BSCProject <a href="https://bscproject.org/#/" target="_blank" rel="noreferrer noopener">data</a>.&nbsp;



<blockquote class="wp-block-quote">The rebranding is to stress its independence and deemphasize Binance’s role going forward, Zhao said.&nbsp;</blockquote>



“BSC, now BNB, was an experimental product that we initially contributed to and helped with the initial funding, but now it’s community driven, open sourced and decentralized,” Zhao said. “Binance doesn’t own the chain, it’s just a contributor in the community and will continue to do so, but the BNB chain is completely running on its own. It’s not run by us or anyone else,” he added.&nbsp; 



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