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What's with Binance's "BNB burns"?
Binance BNB burns are just cleverly disguised insider selling.
One of the great things about tweeting stuff to a significant number of followers is that they educate you. So it was with my last post regarding BNB burns, to which user @tmnxeq replied:
This point has been brought up many times by Binance doomers like Adam Cochran: There is no on-chain exchange of BNB for stablecoins. It’s a bullshit transaction. They argue that this is instead an illusory, ‘psyops’ buyback where BNB tokens, which were printed out of thin air, are burned in a meaningless ceremony. By implication, Binance validators (understood to be decentralization theater in which CZ exercises supermajority de facto control) could similarly mint new BNB out of thin air for any reason.
However, I think there’s a much more compelling explanation: the BNB auto-burns are insider sales by CZ.
Binance is assumed, even by some of its haters, to spit cash to the tune of $5B+/year. (See my previous post for logic.) Binance also controversially pays its employees entirely in BNB tokens, not cash. Its 8,000 employees, regardless of how bullish they are on Binance, have significant cash needs. A global average of $50k/employee of cash needs would require $400M of annual insider selling.
At the same time, CZ has his own rational liquidity needs and wants. He needs a significant reserve of fiat cash for legal fees, industry downturns, and minority investments in other crypto companies. Like any US dotcom CEO, he would also want to very gradually diversify his assets away from BNB. (As a comparison, Jeff Bezos has sold, on average, >$1bn of AMZN stock every year.) Given crypto’s much higher volatility, Binance’s regulatory issues, and CZ’s very active investment in affiliates (especially centralized exchanges) for both personal and regulatory-hedging reasons, at least a $1bn/year liquidity preference for CZ feels like a floor.
So we have $1.5B+ of annual insider selling flows are not accounted for in the public ledger of blockchain transactions.
On the other side of the coin, we have the “BNB autoburns.” In this transaction, a very large wallet (not always the same one) literally donates BNB to a burn address. The autoburns are $500-700M of BNB per quarter.
In crypto, if you own the keys to a wallet, you own the assets. Someone must own the keys to any wallet that can execute those burns, and the only possible key owner is CZ.
So if CZ owns the keys to that wallet, he is donating his BNB for the sake of a community burn—which would be illogical and extremely inefficient.
A much more likely explanation is that CZ is indeed donating his own BNB tokens to the BNB burn — and is extracting Binance operating cash flow off-chain on the other side of the transaction, thus executing a hybrid on- and off-chain CZ share sale → Binance corporate share repurchase. In this way, a) CZ probably gets a preferential price for his BNB since he’s not hitting the market with $500M/qtr of sales; b) CZ executes the sale without giving any ammunition to the Binance FUD brigade; c) CZ has significantly more freedom to sell more or less aggressively based on his own highly-informed reading of market conditions and Binance’s own situation; and d) CZ, who has a frenetic marketing schedule, doesn’t have to devote a huge percentage of his PR schedule to justifying his own insider-selling behavior.
The autoburns alone (CZ) would account for 25-50% of Binance FCF, leaving Binance with plenty of extra cash for its own investing purposes.