Actually ahead of FTX? 125x leverage a thing of the past, Zhao Changpeng: Maximum leverage ratio to be reduced to 20x within weeks

The cryptocurrency exchange FTX announced yesterday, 7/25, that it would cancel high leverage and reduce the limit to 20 times. Binance CEO Changpeng Zhao then tweeted today that futures contract products will gradually be limited to a maximum of 20 times leverage.

FTX founder Sam Bankman-Fried also tweeted yesterday, 7/25, announcing that they would take the lead in the industry by removing high leverage from FTX, with a maximum of only 20 times leverage.

He mentioned that almost all cryptocurrency derivative exchanges offer high leverage, but in reality, the trading volume and positions with high leverage are minimal. For FTX, the liquidation volume is less than 1% of our trading volume and positions, making it not a significant part of the exchange.

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He claimed that the average leverage ratio on FTX is less than two times and after much consideration to encourage responsible trading by users and attract specialized traders, they made this decision.

Changpeng Zhao: Action Taken a Week Ago

Binance CEO Changpeng Zhao CZ tweeted today:

Starting from 7/19, Binance's futures contract products have begun limiting the maximum leverage for new users to below 20 times. We do not want to make a big deal out of this, but in order to protect consumers, we will gradually apply the new rules to existing users in the coming weeks.

.@binance futures started limiting new users to max 20x leverage last Monday, Jul 19th, 7 days ago. (We didn't want to make this a thingy).

In the interest of Consumer Protection, we will apply this to existing users progressively over the next few weeks.

Stay #SAFU. 🙏

— CZ 🔶 Binance (@cz_binance) July 26, 2021

Criticism of High Leverage

High volatility has always been one of the biggest characteristics of cryptocurrencies, and high leverage contract products amplify this volatility infinitely. While high leverage mechanisms are occasionally criticized by industry insiders, it is only when the market experiences a crash that more people pay attention to the issue.

From the beginning of the year to several downturns since April, high leverage has always been seen as one of the main culprits, with even quantitative institution Alameda Research not ruling out that this is a contributing factor to the increased liquidations.

Now, FTX and Binance have taken the lead in removing high leverage products, and other exchanges are bound to follow suit. As SBF mentioned, high leverage is not healthy for the market, and this move is expected to make the cryptocurrency trading market more robust in the future.