Amid increasing regulatory pressures on Binance and other centralized finance (CeFi) service providers worldwide, the decentralized finance (DeFi) ecosystem on the BNB Chain (formerly known as Binance Smart Chain) has seen a decline of approximately 2 billion dollars in total locked value (TVL) since the beginning of the year. This decline has raised many questions.
The decline in BNB Chain’s TVL has brought back the recent prediction made by Binance CEO Changpeng Zhao (CZ) that DeFi will outperform CeFi in the next bull run. CZ made this prediction during an “Ask Me Anything” (AMA) session held on September 3rd, where he talked about the challenges faced by the company and other regulatory issues related to the DeFi ecosystem.
However, despite Zhao’s vision for the cryptocurrency market and Binance’s focus on the decentralized finance sector, the current numbers regarding BNB Chain indicate a disturbing outlook for Zhao and Binance.
Current data from DeFiLlama shows that BNB Chain’s TVL has decreased by 1.85 billion dollars since the beginning of the year. On January 1, 2023, BNB Chain’s TVL was 4.65 billion dollars, but it has now dropped to 2.8 billion dollars. As expected, this decline in BNB Chain directly affects the price of BNB. BNB is currently trading within a narrow range of 220 to 200 dollars after suffering a significant loss following the lawsuit filed by the US Securities and Exchange Commission (SEC).
The decline in TVL of BNB Chain is mainly due to the decline in protocols built on the ecosystem. Particularly, two leading DeFi protocols built on BNB Chain, PancakeSwap (CAKE) and Venus (XVS), currently dominate a significant portion of the total locked value with TVLs of 1.27 billion dollars and 608.46 million dollars respectively. Both have experienced respective declines of 1.52% and 7.18% in the past 30 days.
Interestingly, the third-largest DeFi protocol based on TVL actually considers “Binance staked ETH” measured in Ethereum (ETH) instead of BNB Chain. Therefore, by staking ETH to earn passive income, investors are contributing value to the first chain only because they are using CZ’s structure.