Binance CZ denied providing a credit line to fund a bailout for Three Arrows Capital and explained his philosophy on which companies deserve a bailout and which should not be helped so let’s read more today in our latest Binance news.
Binance CZ denied providing a credit line and stated that his exchange was not the main trading venue for the faltering hedge fund 3AC and didn’t extend any lines of credit to fund the bailout. The South China Morning post which many troubled companies approached with similar requests for loans and CZ didn’t elaborate quite at the time. The blog post from the CEO explored the ethics of bailouts, leverage, and its role in today’s environment:
“We also have a responsibility to help industry players survive and hopefully thrive. This is the case even if there are no direct benefits to us or we experience negative ROIs.”
There are some companies that don’t deserve bailouts and these include those that are poorly designed and managed or poorly operated like bad projects financed by creative marketing and Ponzi schemes but consumer education is the best protection against these projects. On the other hand, most projects that make small mistakes but have a sound business model, and good teams could deserve a bailout. There are those great projects which are barely holding on and due to being low on cash, they could wait for a cash injection or explore the acquisition possibilities.
Most troubled companies approached Binance in the past few weeks and claimed to be in the third category. This forced Binance to examine them all and start making nuanced decisions for each but there’s also some subjectiveness to it. The CEO tackled the topic of leverage whereby companies take out loans by using crypto as a collateral and order to multiply their position. Leverage was central to the June market meltdown as multiple lending companies saw their risky loans positions in liquidation while the crypto collateral tanked in value.
Celsius was forced to indefinitely pause the withdrawals from the platform as it sourced liquidity to refinance the loan and Babel Finance was forced into a similar position afterward due to the involvement with 3AC which took on multiple risky loans. CZ also drew a distinction between these two types of leverages within the crypto ecosystem and the fast leverage is often related to the products of the future that trade on centralized exchanges so if there’s any kind of liquidation cascade, it tends to begin and end quite fast with the leverage so for example on March 12, 2020, BTC crashed from $8000 to $3000 in one day due to the leverage but then recovered.
On the other hand, today’s market seems to be plagued by slow leverage where the funds lend t other funds and defi protocols to invest so this effect of the leverage can often spread much more slowly and take longer to admit to by troubled platforms as CZ added:
“I believe we have not seen the end of these yet.”
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