As the blockchain industry grows, cryptocurrency exchanges are coming out on top. Gruelling bear markets and economic downturn shake out one promising startup after another. Yet, exchanges with their high traffic and stable transaction fee model are able to weather the storms. And those at the top of their game are taking the battle to a whole new level: the public chain.
Three leading exchanges are vying for the throne right now: Binance, OKEx, and Huobi. Binance clearly has first-mover advantage, having launched Binance Chain a little over a year ago in April 2019. However, while both still in testnet, newer entrants Huobi and OKEx are also showing promise.
How the exchange competition evolved into the public chain race
Centralised exchanges will always have a place in crypto. They provide users with convenience and efficiency. They also help onboard more people to the cryptocurrency space and made enormous contributions to growing the industry, particularly in the early days. However, the market is growing fast and, along with it, the demand for new types of services in which efficiency and convenience may not be the core drivers.
If behemoth exchanges want to tap into these new areas they need to innovate and push outside of their comfort zones: to the public chain. As arguably the most important blockchain infrastructure, public chains can offer users (as well as the exchanges behind them) enormous benefits.
Binance Chain, OKChain, and Huobi Chain
Binance is clearly leading the way right now in the exchanges’ public chain race. Binance Chain primarily hosts Binance DEX, its decentralised exchange, although, the company announced just last month that it would be launching a second chain. This will be smart-contract enabled and allow developers to build on it using Ethereum’s Virtual Machine. In launching a second chain, Binance aims to maintain the speed and functionality of its original chain and connecting the two through a cross-chain bridge.
OKEx launched the testnet of OKChain in February of this year, completing open source two months later. It is designed to enable an ecosystem of decentralised finance and large-scale blockchain-driven commercial applications. Although it hasn’t reached mainnet yet, the first phase of ecological partner construction has been completed. This includes such elements such as the public chain itself, a wallet, explorer, and PoS mining pool.
OKChain appears to be the most decentralised of the three public chains as each of the nodes on the network has a high degree of autonomy. This is in contrast to Binance which largely controls node operations and transaction pair operations.
Huobi Chain, like OKChain, is also open-source, launching to testnet this February. Unlike its competitors, Huobi aims to provide services for financial services institutions and has a high focus on regulation. This gives it a different positioning from Binance and OKEx, and also a lesser degree of decentralisation as Huobi Chain uses a variation of Delegated Proof-of-Stake (DPoS) and will have regulators as validators on the network.
Inflationary vs deflationary economic models
Both Huobi and Binance have opted to use their native tokens BNB and HT to power their chains. OKEx, on the other hand, has created a new token OKT instead of using its exchange token OKB. This is interesting as it highlights the difference between two economic models: deflationary and inflationary.
There is a longstanding conflict of interest between the two parties involved in the public blockchain ecosystem: token holders and users (including dApp developers).
To keep the chain in balance, there needs to be a relatively equal number on either side so as not to disrupt the entire network. Users, for example, suffer if exorbitant fees inhibit the chain’s growth and make the cost of using the chain prohibitive. Token holders, on the other hand, want the price to increase and hold their tokens with that very expectation.