28/06/2021 As regulatory scrutiny intensifies, crypto exchange Binance jumps on the NFT bandwagon

Under increasing fire from regulators, cryptocurrency exchange Binance hopes to broaden its revenue base by launching a new marketplace to trade digital music, art and collectibles.

On Saturday, the company's reputation suffered a blow after UK financial market regulator banned its local entity, Binance Markets, on concerns the crypt marketplace wasn't doing enough oversight to prevent money laundering and other financial crimes on its platform.

The crackdown is the latest in an ongoing series of setbacks to the broader crypto universe that has wiped billions off the market value of listed U.S. rival Coinbase, and prompted marketplace Kraken to consider postponing its own plans to go public.

Undeterred, Binance is pushing forward with its plans to diversify the business. The company will now offer the trade of non-fungible tokens, basically any digital asset that is not a virtual currency. The company believes its greater liquidity and lower fees will convince content creators to choose their crypto as the hub of choice.

“Based on user numbers, our platform will attract millions of potential collectors in the world,” said Binance NFT project lead Helen Hai in an interview with Fortune; the new service went live on Thursday. “With a profitable exchange business we have the luxury to look at what our users need the most.”

Hai, who became a believer in blockchain technology through her ongoing work as Head of Binance Charity, argued NFTs lower the barriers to market for creative minds.

“You could quit your job to be an artist, but do you think an art gallery will exhibit it, what commission would they charge, and would you reach consumers thousands of miles away?” she argued. “I see NFTs as the start of a technological renaissance in art.”

In order to encourage artists around the world to put their virtual works up for sale, Binance is creating a kind of digital Etsy where a transaction fee of only 1% will be exacted with the rest going to the creator. Hai said the company plans to work with the local Binance community to select the best candidates.

“If you do not know how, our website provides the technology for non-natives crypto artists to mint their art into the blockchain within one minute,” she said.

For the most sought-after creative collaborations, there will be a premier event category where a 10% commission fee will be charged. The first, aptly called Genesis, offers collectors the opportunity to bid on NFTs based on variations of Andy Warhol’s "Three Self Portraits" and Salvador Dali’s Divine Comedy watercolors.

Payment can be settled in Binance’s own proprietary token called BNB, its stablecoin BUSD that is pegged to the dollar, as well as more common cryptocurrencies like Ether.

Ownership over these digital assets can always be tracked and authenticated via immutable entries in the blockchain, a distributed ledger technology.

Regulatory fire

Hai couldn’t say how large the potential NFT market was, but expected it to grow in the long term as her three-year-old son grows up in a future she imagines in which they will eventually be “surrounded by digital screens.”

The company, which claims to be the world’s largest crypto platform by trading volume, has come under controversy of late.

This weekend’s crack down by the UK’s Financial Conduct Authority marks the second major western economy, after the United States, to ban direct operation of a Binance trading unit. UK consumers can, however, still legally trade on the unregulated, global platform, though the FCA warns against this.

"A significantly high number of cryptoasset businesses are not meeting the required standards under the Money Laundering Regulations," the FCA said in a statement sent to Fortune, adding ominously, investors should be prepared to lose all their money.

Binance also encountered controversy recently due to the performance of inverse tokens it had sold to speculators. This hedge was meant to give investors the chance to profit, not just from rising crypto prices but from fallings ones as well; but the product backfired badly on users.

None of those setbacks appear to be dashing enthusiasm among crypto bulls. Over the weekend, Bitcoin and other crypto currencies traded higher.

At the time of the interview, Hai said she had not yet bought an NFT, but she was nonetheless attracted by the project due to a personal conviction the underlying technology will fundamentally reshape commerce.

“The Internet provided free transfer of information globally, while blockchain offers the free transfer of value. From that perspective, NFTs are a very important feature that achieves that,” she said.