Binance Smart Chain suffered a $31M suspected rug-pull today from Meerkat Finance. This resulted in direct losses of ~$14M BUSD and ~73.6K BNB. Currently, users are reporting that the transfer bridge is down. This leaves them stranded and unable to move funds.
In fact, the Binance smart chain network or bridge is used to transfer assets across Ethereum mainnet and the Binance Smart Chain. Also, the latter is an Ethereum fork with Proof of Staked Authority (PoSA) consensus. Currently, it’s not working.
Binance exchange took down that bridge to prevent hackers or scammers from transferring their funds back to the Ethereum blockchain.
Presently, Binance is in a dilemma. This is the largest problem on BSC to date. Many suspects that the BSC network is under centralized control.
If the company rolls back the chain and funds restored to original owners, there will be a big question mark on decentralization.
The reputation of the world’s largest centralized exchange Binance might suffer, because of users losing funds. There has been no comment on the matter from the exchange. Now, the bridge is down.
Also, the exchange might try to control the situation by restricting funds transfer to Ethereum. Many consider this as more decentralized and uncensorable.
This action of taking the smart bridge down is likely to further deteriorate the situation and trust in the system. In turn, users can’t be certain whether they would be able to perform certain actions trustlessly, amidst restrictions imposed by BSC’s custodial nature.
About Binance Smart Chain
The Binance Smart Chain is a fork of the Ethereum blockchain with a Proof of Staked Authority (PoSA) consensus mechanism and seamless compatibility with Ethereum Virtual Machine (EVM).
Also, it relies on 21 validators with large BNB token holdings, who process transactions on the network. These validators are mostly Binance-operated entities.
In fact, BNB token distribution is skewed in favor of the founders/team, and validators are approved by the exchange. It’s essentially permitted and in-arguably centralized.
On another note, fewer nodes provide immense computational power without getting clogged. This in turn results in high throughout and negligible fees. Results from Binance return around 30% of the fees paid to the smart contract deployers to finance continued interest and aligned incentives.