Binance makes aggressive push on in-house DeFi with $100M fund

Following the launch of Binance’s Smart Chain, an Ethereum-compatible blockchain with a keen focus on decentralized finance, the exchange is now doubling down on its strategy to attract DeFi projects.

At the company’s World of DeFi summit on Thursday, Binance’s CEO Changpeng Zhao announced the launch of a $100 million investment fund devoted to projects building on the Smart Chain.

The fund will be used for a variety of purposes, including seed funding for projects building on the smart chain. The company says the maximum investment will be $100,000 — admittedly quite low in the world of seed fundraising, especially in crypto.

A Binance spokesperson told Cointelegraph that the fund is geared specifically toward early stage startups, and that further funding may be provided via existing investment channels like Binance X, Binance Labs and others.

A portion of the money in the fund will be used to bootstrap liquidity for projects that pass audits and due diligence. A collaboration with security company Certik will entitle Binance portfolio companies to a “a low audit service fee as well as fast track options for the audit process,” the spokesperson said.

One of the goals of the fund is to bridge the world of centralized finance and exchanges, or CeFi, with the DeFi movement. Building on the Smart Chain will let projects benefit from Binance’s vast existing user base, the company says. Binance users will be able to use the Smart Chain with their existing exchange accounts, which should lower the barrier of entry significantly for users who wish to dip their toes.

The exchange is also planning to provide a “DeFi experience” within the bounds of its centralized platform through initiatives like Launchpool. The system is similar to the concept of yield farming, where users stake assets to receive a share of the distribution of a new token. Other DeFi-inspired programs include Liquid Swap and DeFi Staking, with the former being a centralized automated market maker, while the latter is an automated yield management tool similar to Yearn.finance or Rari Capital.

Furthermore, the exchange is planning to create a centralized bridge to the Binance Smart Chain that could let many other tokens on Ethereum or coins like Bitcoin (BTC) and Litecoin (LTC) to be ported into the DeFi environment. Similar to solutions like Wrapped BTC, the bridge is custodial and fully managed by Binance.

The combination of these solutions could make Binance-sponsored DeFi a formidable challenger to Ethereum’s current ecosystem. While many competing blockchains are trying to recreate the vibrant DeFi community on their own turf, they generally lack the strong network effects enjoyed by Ethereum.

Binance’s user base is, on the other hand, comparable in size if not larger than Ethereum’s. The bridge would also let capital from other blockchains be ported to the chain if needed.

The drawback is, of course, centralization. Binance would have governance power in the projects it invested in, and the Smart Chain with its BNB-centric design would naturally favor the exchange due to the fees it collects.

While Binance is not hiding the fact that its alternative is more centralized, it remains to be seen if the community will accept this.