Binance delists leveraged tokens in three days just to "protect users"? Here's another clue.

The "leveraged tokens" product was initiated by the FTX exchange and is traded on exchanges such as Binance. Binance announced on March 28 that they would delist this product within just three days, citing "user protection" as the reason. This may be a first for Binance to delist a product due to users' lack of understanding of the product mechanism. Chain News has compiled some interesting clues that may provide further explanation for the delisting to readers.

A Quick Overview of Leveraged Tokens

Having followed leveraged tokens for a long time, simply put, it is a way to trade complex leveraged contract rules (such as: margin, funding rates, liquidation, etc.) by using a single "long" or "short" token, allowing users to buy and sell based on the direction of the spot price. The price will adjust based on the direction of the spot price, meaning the price of the token you buy is based on the "volatility of the coin price."

If you choose the right direction, the price of the leveraged token will grow by a multiple of the spot price volatility (for example: if Bitcoin rises by 1%, the price of the token you're long on will rise by 3%), and vice versa. After a day, if there is profit, the position will automatically increase the next day, allowing profits to compound; if there is a certain level of loss, it will also automatically reduce to avoid liquidation.

Research reports indicate that when the market moves in the same direction for several consecutive days, compared to directly trading contracts, one can earn more and lose less with leveraged tokens. However, when prices fluctuate up and down, compared to direct contract trading, there may be a situation of earning less and losing more. Learn more: Investigation - I Don't Understand Contract Trading, Is Trading "Leveraged Tokens" Feasible?

Clue 1: Binance Customer Complaint Incident

Between March 12-13, due to price volatility, Binance's leveraged tokens experienced liquidity issues, causing price delays in response. Users holding leveraged tokens believed they suffered significant losses and complained to Binance founder Zhao Changpeng (CZ). At the time, CZ did not directly respond, but rather tagged the CEO of FTX in a tweet.

Based on CZ's past handling, he usually makes comments or appeases users directly, making cases of tagging the issuing institution for communication very rare. It seems that CZ either did not know or did not want to address the issue directly at that time. Learn more: [Analysis] Binance's Leveraged Tokens Plunge Mystery, What's Going On?

Clue 2: Delisting in Three Days, FTX Announces USDT Trading Pairs

On March 28, Binance announced that leveraged tokens would be delisted directly in three days because the user community did not understand the product. The founder of FTX then stated that Binance was unwilling to help users understand.

According to CZ: "Although leveraged tokens are rarely liquidated, their value decreases with market volatility. They are not suitable for long-term holding, and if you have unrealized losses, it is difficult to break even by just holding them." However, CZ still stated that the main reason was: "Most users do not understand this product."

https://twitter.com/cz_binance/status/1243920446250053633

Despite many netizens' responses such as "the delisting time is too rushed" and "users can be educated," CZ still believes that time will prove that rapid delisting is relatively correct, and finding innovative and effective educational methods can be discussed later.

In fact, educating users has always been something Binance is passionate about, and exchanges like FTX that trade leveraged tokens also provide relevant information. It seems that there are still some users willing to continue using this product. It is reasonable to judge that without a large number of user losses, the immediate delisting reason may be difficult to justify.

Another coincidence is that shortly after Binance announced the delisting of leveraged tokens (10:12 pm), half an hour later, FTX immediately announced spot trading pairs BTC/USDT and ETH/USDT (10:44 pm).

Three months ago, Binance strategically invested in FTX, mainly to develop the derivatives market. Currently, FTX's contract margin is mainly in US dollar stablecoins (USD), and whether the repetitiveness of the product line (launching USDT trading pairs) led to some disagreement, there may also be some gossip.

On April 2, Binance has abandoned leveraged tokens and promoted their own leveraged trading to users:

Further Reading

• The Lightning-Fast Expansion Journey of the Crypto Kingdom Binance: From Pirates to Navy

• Some Losses Questioned as Misappropriation of FTX Funds? Alameda Founder Responds: Just Personal Hedging

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