Binance's leveraged tokens stir controversy again, The Block criticizes: What happened to protecting users?

Yesterday's report stated that Binance may soon list its own version of leveraged tokens as early as this Thursday. Subsequently, Binance announced the listing of leveraged tokens BTCUP and BTCDOWN as scheduled on Thursday at 6 p.m. This move by Binance was actually leaked by The Block's research director, Larry Cermak, on May 8th, so after the news was officially confirmed, he once again criticized Binance on Twitter.

Larry Cermak's dissatisfaction stems from Binance's previous claim that "users do not understand leveraged tokens," resulting in the delisting of the FTX version. However, they have now introduced their own version of leveraged tokens, which seems contradictory to their initial reason for protecting users. He pointed out on Twitter:

Where did CZ's previous claims of "protecting users" and "users still not understanding leveraged tokens" go? Now that Binance has launched its version of leveraged tokens, are you going to change your reasoning again?

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According to Binance's announcement, the new Binance Leveraged Tokens (BLVT) have the following features:

• Leverage : Target leverage maintained between 1.5 to 3 times.
• Smart rebalancing mechanism : Rebalances leveraged token positions only when necessary to increase profits in favorable market conditions and reduce losses in unfavorable conditions, avoiding liquidation.
• Fees : Related fees include trading fees (0.1%), redemption fees (0.1%), management fees (0.01%), and funding fees (included in trades).

However, compared to FTX's fees: trading fees (maker 0.02%, taker 0.07%), management fees (0.03%). Binance's fees do not appear to be as low as claimed.

Leverage Algorithm Sparks Controversy

Furthermore, Binance's leveraged token positions are controlled by a proprietary algorithm, which does not disclose in advance when the re-balancing will occur or the target leverage mechanism.

This means that the target leverage ratio is determined by the algorithm, always fluctuating between 1.5 to 3 times, but no one can know the exact ratio at any given moment. The re-balancing information (including changes in positions and leverage levels) will only be displayed on the Binance leveraged tokens page afterwards.

Larry Cermak pointed out: As expected, Binance not only introduced its own token but also reduced transparency, which could confuse users, not surprising at all.

CEO of Three Arrows Capital, Su Zhu, also commented:

The re-balancing rules for leveraged tokens introduced by Binance are defined too arbitrarily, and I agree that this could be the beginning of a disaster.

FTX Founder's Silent Protest

Larry Cermak seems quite frustrated with his lone battle, as he stated on Twitter:

Can we not discuss Binance delisting FTX leveraged tokens, only to quietly list their own leveraged tokens a month and a half later? When all the attention is on the halving, Binance chose this time to release the news because they know they are wrong. I really can't think of anything more hypocritical, and I don't understand why no one is talking about it.

Recently, as FTX exchange celebrated its one-year anniversary, its founder Sam Bankman-Fried seemed reluctant to discuss the issue of leveraged tokens, only posting an article on product transparency in the thread below Larry Cermak's post, concluding:

Not following the principles of information transparency can be very dangerous. It is crucial for efficient market operation to build an open financial ecosystem, maintain a competitive market, and provide transparent products. Nothing is perfect, but slight differences will determine whether certain products will trade at accurate prices while others will not; this also determines whether some products will be maliciously exploited or not.

This move is seen as a response to the lack of transparency in Binance's leveraged token mechanism by the crypto community, and according to the Binance announcement, the leveraged tokens will be listed on Thursday at 6 p.m., but trading will only be available on the advanced trading interface.