BNB rallies 39% despite smart contract deposits dropping 28% — Should investors be worried?

Cryptocurrency

Cryptocurrencies’ total market capitalization bounced from $860 billion on June 30 to the current $1.03 trillion, a 20.6% relief in five weeks. Ether (ETH) might have been the absolute leader among the largest smart contract chains, but BNB managed to gain 39% over that period.

BNB token’s year-to-date performance remains negative by 43%, but the current $49.5 billion market capitalization ranks it the third largest, excluding stablecoins. Furthermore, the leading decentralized application (DApp) is PancakeSwap — 843,630 active addresses in the past seven days — which runs on BNB Chain.

The token serves primarily as a utility asset within the Binance exchange ecosystem, enabling traders to earn discounts or participate in token offers. So, technically, the BNB token does not give ownership rights or dividends to any Binance-owned company or service.

However, according to Bloomberg, the United States Securities and Exchange Commission (SEC) is investigating whether the initial coin offering (ICO) of BNB tokens in 2017 consisted of a sale of unregistered securities. A digital asset may fall under the SEC’s scrutiny if buyers intend to profit from the efforts of a company or project funded by the capital raise.

To understand whether BNB’s 39% rally in five weeks is justified, investors should analyze network use, including smart contract deposits, active users and decentralized applications adoption.

Mixed data from smart contract deposits and DApp usage

BNB Chain‘s primary decentralized application metric started to display weakness earlier in May as the network‘s total value locked (TVL) dropped below 24 million BNB.

The chart above shows how BNB Chain‘s DApp deposits saw a 28% decline in three months as the indicator reached its lowest level since April 2021. As a comparison, Ethereum‘s TVL currently stands at 24.4 million ETH, an 11% decline over the same period. Moreover, another DApp competitor, Solana (SOL), saw a 2% TVL decrease to 50.2 million SOL.

On the bright side, on Aug. 3, the Binance exchange announced the launch of its first-ever token aimed at certifying verified user status on the platform. Binance Account Bound (BAB) token is a decentralized identity tool displayed to indicate that a wallet’s owner has passed Know Your Customer (KYC) verification on the exchange.

To confirm whether this drop in TVL should be concerning, one should analyze DApp usage metrics. Some DApps are not financially intensive, so the value deposited is irrelevant.

As shown by DappRadar data, on Aug. 4, the number of BNB Chain network addresses interacting with decentralized applications gained 17% on average. The only negative change was SecondLive, a metaverse using decentralized finance and NFT technologies.

Increased DApps use is not backed by additional addresses

Growing interest in BNB Chain DApps was not reflected in active network addresses, which peaked at 2.27 million on Dec. 1, 2021, and has recently averaged slightly over 900,000.

Even though BNB Chain’s TVL has been hit hardest compared to similar smart contract platforms, there is solid network usage in decentralized finance (DeFi) applications and games. Both Era7: Game of Truth and MOBOX: NFT Farmer rank in the top 10 DApps across every blockchain covered by DappRadar.

The above data suggest that BNB Chain’s TVL is losing ground versus competing chains, but investors should not be concerned because DApps activity in the network remains strong. As long as the Binance exchange does not face severe impediments in supporting the BNB Chain, there is little reason to be bearish on the BNB token.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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