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Binance CEO refuses a line of credit to 3AC after its default

Binance CEO Changepeng Zhao (CZ) has stated that his exchange was not the primary trading venue for faltering hedge fund Three Arrows Capital (3AC). She also did not give the fund lines of credit for a bailout.

The types of bailouts

As on Wednesday from Wu Blockchain tweeted, the South China Morning Post reports that many troubled companies have recently approached Binance with similar loan requests. CZ didn’t elaborate at the time.

However, a blog post by the CEO on Thursday examined the ethics of bailouts, leverage and the stock market’s role in today’s uncertain environment.

“We also have a responsibility to help industry players survive and hopefully thrive,” the statement said. “This is the case even if there are no direct benefits for us or we see negative ROIs.”

As the executive explains, there are some companies that don’t deserve bailouts. This includes those that are poorly designed, poorly managed, or poorly operated—in other words, “bad” projects inflated by creative marketing and Ponzi schemes. Rather, consumer education is “the best protection” against such projects

On the other hand, projects that make “little mistakes” but otherwise have solid business models and good teams might otherwise deserve a bailout.

Finally, there are the “great projects” that hardly last. Short of cash, they can either wait for a cash injection or explore acquisition opportunities.

Many struggling companies have turned to Binance over the past few weeks, all claiming to fall into the third category, as might be expected. This forced Binance to carefully review them all and make nuanced decisions for each. “There’s a certain subjectivity to that,” CZ said.

Leverage: fast and slow

The CEO also touched on the issue of leverage, where companies take out loans cryptocurrency as collateral, often to multiply their position.

Leverage was central to the market plunge in June as several lending platforms saw their riskier lending positions near liquidation while their crypto-collateral fell in value.

Celsius for example, was forced to indefinitely pause all withdrawals from the platform as it raised liquidity to refinance its loan. Babel Finance was soon forced into a similar position due to its involvement with 3AC, which also undertook several risky loans.

CZ distinguishes between two types of leverage within the crypto ecosystem: fast and slow.

Fast leverage is often associated with trading futures products on centralized exchanges. If there is any sort of liquidation cascade, it tends to start and end very quickly with this leverage. For example, fell Bitcoin On March 12, 2020, it went from $8000 to $3000 in a single day due to this leverage, but quickly recovered.

On the other hand, today’s market seems to be plagued slow Leverage – where funds lend to other funds and defi protocols to invest. The cascading effect of this leverage can often spread much more slowly, while also taking longer to be recognized by troubled platforms.

“I don’t think we’ve seen the end of that,” CZ concluded.

Source: Crypto News Deutsch

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