BSC in the Eye of the Storm—Heavy Lies the Crown

Binance Smart Chain (BSC) was launched in September 2020, followed a month later by a $100 million BSC ecosystem acceleration plan. This fund supports not only popular areas like DEX and NFT projects but also numerous Ethereum-based infrastructure projects. BSC's compatibility with Ethereum, low development barriers, low migration costs, fast transaction speeds, and low fees make it an attractive option for new projects and established ones from other chains. Combined with Binance's funding and built-in traffic, BSC appeals to many.

BSC Ecosystem Growth BSC's ecosystem has developed rapidly, with on-chain data surging since February this year. As of June 9, 2021, BSC had 76.66 million active addresses, up 3,832 times from the beginning of the year, with growth slowing after March 3. Daily transaction volumes started to increase in February, but a series of project collapses in May caused a sharp drop-off from May 14 onward. As of now, daily transactions have reduced to 4.418 million, about one-third of its peak volume.

Despite the concentrated failures in May, BSC remains a standout in ecosystem building among public chains. This article first details how Binance has steadily built up BSC, then examines May’s cluster of collapses to provide insights and warnings for the development of public chain ecosystems.

BSC Ecosystem Construction

Token Canal Project

Ecosystem Acceleration Plan The BSC ecosystem acceleration plan covers four areas, providing developer and project support through direct funding or liquidity provisions, as shown below.

On September 4, 2020, the Token Canal Project was launched to provide liquidity support for the BSC Bridge (cross-chain bridge) to facilitate two-way exchanges between other crypto assets and BSC assets.

Seed Fund

On September 11, 2020, BSC launched a $100 million seed fund to select community-supported, secure, liquid, and innovative projects. Besides seed funding, these projects can receive business development, marketing, PR, recruitment, and other support from Binance.

Binance Wallet and Developer Program

On September 21, 2020, Binance launched a decentralized wallet and invited dApp developers to join the BSC ecosystem, enabling cross-chain transfers between Binance Chain and BSC. On October 15, the developer program was launched with two tracks: the BUIDL Reward Program, which rewards developers who deploy practical dApps on BSC with 30% of the network's gas fee income, and the Value Developer Acceleration Program, aimed at identifying quality projects through three phases, with grants reaching up to $2 million for top projects.

BSC’s Goals

Initially, BSC aimed to run parallel to Binance Chain, providing Ethereum compatibility and unlocking staking potential for BNB. With its rapid growth, BSC’s new goal is to build cross-chain financial infrastructure, connecting DeFi and CeFi to unlock the value of the internet. Through BSC bridging services, dApps can interact and transfer assets across ecosystems.

BSC aims to achieve these goals through:

Strengthening key infrastructure and services to ensure security and enable CeFi-DeFi bridging.

Establishing a secure, trusted, comprehensive DeFi infrastructure to meet institutional DeFi needs, thereby attracting real-world assets and applications.

Exploring low-barrier sectors, focusing on games, community tokens, and specific niche markets.

Fostering a robust developer community to incubate and accelerate original innovation and high-performing developers.

The BSC team is researching dApp niches, identifying those anticipated to be important this year.

BSC Ecosystem Map

As of June 7, BSC supports 146 projects, including wallets, insurance, payment solutions, development tools, data tools, NFTs, and marketplaces. Nearly 60 of these have significant user and transaction volumes. Among the subcategories, DEX projects are the most prevalent, followed by infrastructure, lending, and wallets.

Security Risks in BSC

Binance partnered with CertiK at the launch of BSC to safeguard the DeFi ecosystem, followed by a strategic partnership with PeckShield to advance the Crypto Asset Security Alliance and develop security initiatives like DeFi early warning scans and rapid response. Despite these measures, several high-profile project failures occurred on BSC in May, raising concerns about contract auditing and security.

The first case on BSC dates back to November 4, 2020, when a project pulled an exit scam, but Binance’s security team helped users recover 99.9% of the lost funds (worth approximately $345,000). This PR crisis was resolved by Binance, salvaging BSC’s reputation. However, in May, 12 projects experienced concentrated collapses, including BSC’s largest aggregator PancakeBunny, its largest lending platform Venus, and its earliest DEX platform BurgerSwap. Most projects proposed corresponding solutions following their collapses.

In these recent incidents, attacks were quite similar. Flash loans were the primary method, enabling hackers to manipulate prices or arbitrage between multiple protocols at minimal cost. Hackers often target aggregation protocols or DEXs in DeFi, where code security is paramount. Once a system bug occurs, assets cannot be recovered easily.

The incidents also exposed the issues with current DeFi projects that are simple forks without innovation, making them vulnerable to exploits when facing security flaws. If the original protocol encounters a risk, it may trigger a chain reaction, increasing susceptibility to hacker attacks.

These attacks aren’t unique to BSC. Ethereum projects experienced similar large-scale flash loan attacks, oracle manipulation, and reentrancy attacks in the second half of 2020, causing severe losses. BSC’s rapid ecosystem expansion and rising capital levels have led to lax security measures, making it a target for hackers. Fork projects lacking innovation make easy prey for hackers, allowing them to profit with minimal capital.

Over time and market testing, only those DeFi protocols whose developers deeply understand and value the security of their own protocols are likely to survive. Developers need to prioritize security; otherwise, risks will follow them to any chain.

Conclusion

Compared to Binance’s earlier Binance Chain, BSC has been an instant success, launching multiple ecosystem-building initiatives that have achieved significant milestones. This rapid growth is inevitably met with developmental crises. "Heavy lies the crown"—Binance should not only act as a pioneer but also serve as a vigilant gatekeeper, mitigating DeFi contract vulnerabilities to foster a healthy decentralized world.