What are Binance Chain and Binance DEX?

Quote: “The purpose of the new blockchain and DEX is to create an alternative marketplace for issuing and exchanging digital assets in a decentralized manner.”

Binance Chain is a blockchain project build by Binance Exchange and its community to support the operations of their decentralised exchange called Binance DEX, which operates on this new chain. In its most basic form, the Binance Chain allows for basic transactions like sending and receiving BNB tokens.

More interestingly, the fresh Binance Chain also serves as a way to issue new digital asset types by companies or projects. Using Binance Chain for this holds a lot of benefits as they are able to directly issue the asset on the chain but also use the exchange/transfer functionality of the underlying network. This gives immediate liquidity and usability to the newly issued digital asset.

Besides that, projects can propose to create new trading pairs between two different tokens and provide orders for these new trading pairs. Next, the DEX can be monitored via the explorer to confirm the price and market activity of a particular asset.

By default, the Binance Chain comes equipped with a transaction explorer, API, and node RPC interfaces. For those who get lost when reading about RPC (Remote Procedure Call), it basically allows you to connect with a node and provides a simple interface for interacting with the node like unlocking your account or transferring funds.

For users who are interested in doing more with Binance, the following is also possible:
- Apply for running a validator node.
- Run a full node to listen to and broadcast live updates on transactions, blocks, and consensus activities.
- Extract other data of Binance Chain via full node or APIs.
- Develop custom tools to help improve the user experience when using Binance Chain or Binance DEX.

Binance DEX Mechanics - Matching logic
Exchanges like Kraken use a Maker and Taker model which enables them to reduce fees for “takers”. This means that “makers”, the ones that create orders in the order book are responsible for creating liquidity, and so, get a lower fee applied to their order. The “taker” fees are only applied when you remove liquidity from the book by placing a market or limit order that executes immediately against a limit order already on the book. According to Kraken, the difference between “maker” and “taker” fees is more or less 0.10% but this is generally offset by the deeper liquidity and tighter spreads found in the maker taker model.

Binance Dex - Kraken fee

Binance DEX is doing this differently by using a periodic auction which matches all available orders at certain time slots per trading pair. The matching algorithm takes the best “bids” and “asks”. Next, the crossing “bids” and “asks” are matched and executed. The orders will be executed in the sequence of the price and time.

Binance Chain Blockchain

Byzantine Fault Tolerance
Binance Chain implements Byzantine Fault Tolerance (BFT) using the Tendermint solution, which is one of the most implemented BFT solutions. Byzantine Fault tolerance is about reaching block finality, which means that 2/3rd of the network needs to agree upon the block’s content to label it as final.

Essentially, Byzantine Fault Tolerance is a consensus algorithm that works in high-throughput systems. The finality property is guaranteed as long 2/3rd of the nodes in the network act correctly. So, in case some nodes act malicious or fail, finality is still guaranteed.

In short, BFT makes sure nodes can agree upon a shared state but also have to prove that messages sent between nodes haven’t been modified upon transmission. Other projects that implement this highly popular consensus mechanism include Hyperledger Fabric, Lisk, and Zilliqa.

Validator Node
Validation nodes are the nodes in the network with the highest responsibility as they maintain the Binance Chain and all the data that the Binance DEX propagates to the Chain. They join the consensus and agree upon blocks in order to append new blocks to the chain. The fees collected from the validation process are distributed among all participating validators.

Witness Node
The majority of nodes in the Binance Chain consist of these so-called “witness nodes” who have the responsibility of helping to create data replicas and propagate the chain state around the network. They do not take part in the consensus process but act more as a kind of broadcaster.

Accelerated Node
An accelerated node is a special type of node that holds more rich consensus. For these nodes, the main goal is to provide quicker API access for more time-sensitive systems. These accelerated nodes are enabled by building a highly optimized infrastructure around validator nodes as they have first-line access to the Binance Chain. By building around this node, they do not influence the validator performance which would be disadvantageous for Binance Chain.

Development Kits
Currently, Binance offers kits to develop tools and applications on top of Binance Chain for four different programming languages: Go, Java, Javascript, and C+++.

Looking at the Javascript SDK, they provide full API documentation and some code examples to get you started. More interestingly, they also provide Ledger support (hardware wallet) so you can sign transactions from your Ledger and confirm transactions within any application that decides to implement this support. It is a great feature for further adoption of more safe standards of handling tokens.

BEP-2 Token on Binance Chain
Besides the release of Binance DEX, Binance has also created a new proposal for token management on the Binance Chain through the usage of their newly developed BEP-2 token proposal. Like every other token proposal (referring to ERC20 standard), this BEP-2 proposal lines out a common set of rules for managing tokens on the Binance Chain and which actions it can execute.

When Binance Chain was created via the Genesis Block, the only asset that could be found was the native BNB asset. This is an ERC20 token which will be swapped for BEP-2 variant of the BNB token. This new BEP-2 BNB token can be used for paying fees (gas) and also for staking in the Binance Chain.

The token proposal outlines the following properties for a BEP-2 asset (more information about field types on Binance Github):
- Source address: Address of the user issuing the new token.
- Token name
- Ticker symbol
- Total supply
- Mintable: Whether new tokens can be created in the future or a fixed supply is used.

Possible Token Actions
According Binance’s site, Binance Chain supports the following token actions:
1. Token issuance
2. Transfer tokens
3. Freeze tokens: Allows you to lock up a certain amount of token in your own address. This means that the tokens can’t be used for creating orders, transferring, or paying for fees.
4. Unfreeze tokens: Opposite action of freezing.
5. Mint tokens: A mint transaction can be initiated to issue more tokens for an asset you have created.
6. Burn tokens: Possible to reduce the total amount of tokens by “burning” them. This means that you are sending tokens to a non-existent address so you can’t recover them and a transaction explorer can’t keep track of this.

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