How Binance’s New Stock Tokens Differ From DeFi’s Synthetic Stocks

In a recent update, popular cryptocurrency exchange Binance announced that it has ventured into the tokenized stock trading space. Binance inaugurated its new line of digital assets with Tesla stocks. The exchange has named its product Binance Stock Tokens, which it says represent zero-commission digital tokens that qualify holders for returns, including dividends.

Users will be able to purchase tokens which are backed by actual Tesla shares—or fractions thereof—which were recently trading above $700 on 12th April 2021. Users can buy as little as one-hundredth of the stock, with transactions settled in Binance USD (BUSD). Before Binance, the other stock exchanges that offered tokenized stocks include FTX and Bittrex Global. 

According to Binance CEO Changpeng Zhao, Binance stock tokens are real-life examples of democratic value transfer. It works in a fashion that is seamless and accessible, yet, does not compromise on the issues of compliance or security. Like its predecessors, FTX and Bittrex Global, Binance partnered with the German financial firm CM Equity AG and the Switzerland-based tokenization firm Digital Assets AG. 

Binance Stock Tokens: Features and Requirements

Binance is calling this launch a zero-commission service as it is not charging any fees on the trading of stock tokens. However, Sam Bankman-Fried, the CEO of FTX, the exchange that charges 2-7 basis points of commissions depending upon its trading volumes, says that Binance “could be charging a spread to create/redeem.” He also anticipates that “Binance’s desk could be the only market maker.”

Unlike FTX and Bittrex Global, exchanges that offer tokenized stock trading 24/7, Binance’s services follow traditional market hours. To explain the reason for following the traditional schedule, a Binance spokesperson said that each of their tokens is “fully-backed, and the trades are executed in real-time.”

Another difference between FTX and Binance’s stock tokens is that Binance’s stock tokens are priced and settled in BUSD, whereas FTX’s stock tokens can be bought and redeemed in a range of options, including the U.S. dollar, as well as USDC, BUSD, HUSD, and PAX Standard stablecoins.

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Difference Between Binance Stock Tokens and Synthetic Stocks

Since Binance stock tokens follow the price of Tesla stocks trading at the traditional stock exchanges, users may find their functioning similar to decentralized synthetic asset platforms, such as the Mirror protocol or Synthetix. 

But we must not forget that Binance is a centralized exchange. The difference between centralized and decentralized exchanges is embedded in their defining features, and therefore some differences will always persist between the two.

Mirror Protocol, for example, is a decentralized platform at its core and aims to be decentralized in all aspects including whitelisting, governance, minting, and trading. You can perform all functions available on both the Mirror protocol and its associated Terraswap Pools without any need to go through a KYC process as long as you have a UST balance. That is not the case with Binance. 

As reports suggest, to become eligible to leverage the Binance stock tokens service, users will have to go through the KYC measures, including submitting identity documents and completing facial recognition verification. German residents will require proof of address as an additional measure. 

Therefore, although Binance’s service appears to be quite similar to that of the decentralized finance players, it has all the features—or obstacles, depending on one’s view—of a centralized exchange ingrained in it. 

Do you believe Binance Stock Tokens will give a tough fight to decentralized synthetic asset protocols like Mirror or Synthetix? Let us know your opinion in the comments below.