Binance New Up & Down Tokens Spark Controversy

Binance New Up & Down Tokens Spark Controversy

By Abhi K | News | 14 May 2020

Binance’s latest addition, Binance Leveraged Tokens (BLVT), announced via a blog post on May 13, has met with some criticism from the cryptocommunity. The new tokens, Binance says, eased liquidation risk and the “nitty-gritty of managing a leveraged position. 

However, it notes that leveraged tokens “have a poor track record of generating long-term returns when compared to traditional margin-leveraged products” - but that Binance’s new leveraged tokens address the issues related to other leveraged tokens. An example is that, instead of constant leverage, the token uses a variable target leverage with a range between 1.5x to 3x.

It comes in two forms: BTCUP and BTCDOWN, which allows you to generate leveraged gains when Bitcoin (BTC) goes up or down, respectively. 

Binance lists a few different reasons as to why its leveraged tokens are better than others. Besides the variable leverage rate, it also cites rebalancing, liquidity and fees as showing that BLVTs are better. With respect ot rebalancing, Binance says that it will only do so when required,

BLVTs will only rebalance the positions as needed to maximize profitability on upswings, and minimize losses to avoid liquidation. This means that ‘normal’ fluctuations in the market will not cause rebalances, and the token value will maintain its correlation with the value of its underlying asset.

As for the fees, Binance has focused on attracting users by offering minimal rates - a daily management fee of 0.01%, with an annualized rate of only 3.5%, whereas the daily management fee of other existing tokens is as high as 0.03%.

Community Unhappy

The cryptocommunity, however, has taken quite an unwelcoming view of the new tokens, alluding to an earlier decision by Binance to delist leveraged tokens called BULL and BEAR. The tokens were delisted because it was deemed too much of a risk for investors, who were often uninformed. CEO Changpeng Zhao said the decision had to be made even though it was bad for business.

The community largely seems to agree with the fact that leveraged trading is fraught with risk which users don’t understand, though they don’t seem to take a very positive view of the BLVTs. Users seem to think that the BLVTs are just as risky as previous leveraged tokens, perhaps even more so with the variable leveraged rate. They contend that this would just lead to Binance profiting, while doing little to reduce liquidation. Others state that this is a comparatively trivial development. 

The criticism has also recalled Binance's decision to delist FTX's leverage tokens, BULL and BEAR, and some have pointed out an element of hypocrisy.  

The criticism has not stopped Binance's growth. The exchange seems to be doing all it can to tighten its grip on the market, with a slew of features released in the past year have asserted its position as one of the top exchanges globally.

Abhi K
Abhi K

Technophile, cryptocurrency enthusiast and journalist.


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