• P Xenos and M Bacina

Binance cut cord of leveraged tokens due to lack of user understanding


In a series of tweets, Changpeng "CZ" Zhao has stated that leveraged FTX tokens which were listed two months ago on Binance.com will now be removed as there were too many users that had suffered significant losses and didn't understand the nature of the tokens.


CZ said:

The main reason for de-listing is we find many users don't understand them. Even with pop-ups warning users each time, people still don't read it.

He went on to say:

Given they are some of the most actively traded token, it is bad for business to delist them. Not an easy choice. But ... Protecting users comes first.

FTX is a crypto-derivatives exchange that operates out of Antigua and Barbuda, first introducing its leveraged tokens soon after launching in May 2019.


Each token is based on Ethereum's ERC-20 standard, and tracks an underlying position, in a perpetual contract at 3x leverage. The tokens are primarily designed to be easily tradeable and purchased like a token on the spot market. They are intended to protect against liquidations by automatically adjusting to price moves.


FTX's token description reads: 

Leveraged tokens do well if markets move up a lot and then up a lot more, and poorly if markets move up a lot and then back down a lot, both of which are high volatility.

Because positions didn't liquidate, and many Binance users continued to hold their leveraged tokens even as volatility significantly increased following the market sell-off earlier this month. This eventually led to the sustained devaluations.


CZ also said:

While these tokens rarely cause you to be liquidated, they will devalue over time as markets fluctuate up and down. They are not meant for long-term holding. If you have an unrealized loss, holding for a come back is unlikely to work.

Binance first listed FTX's bitcoin and ether leveraged tokens in January. It came just over a month after the exchange acquired a minority stake in FTX exchange.


In response to the decision, FTX said:

Leveraged Tokens are complicated products, and Binance doesn't want to manage the user education and customer support for them.

© Michael Bacina. All rights reserved

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