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Binance CEO Denies Providing 3AC a Credit Line After its Failure

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Binance CEO Changpeng Zhao (CZ) stated that his exchange was not the primary trading platform for the volatile hedge fund Three Arrows Capital (3AC). He also did not provide the fund with lines of credit to provide financial assistance.

Types of rescue

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As tweeted Wu Blockchain on Wednesday, South China Morning Post reports that many troubled firms have recently approached Binance with similar loan requests. CZ did not elaborate on the details at the time.

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However Blog Post from the CEO on Thursday explored the ethics of rescue, leverage and the role of the exchange in today’s shaky environment.

“We also have a responsibility to help industry players survive and hopefully thrive,” the statement said. “This is true even if there is no direct benefit for us or we get a negative ROI.”

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As the executive explains, there are some companies that don’t deserve to be saved. These include those that are poorly designed, poorly managed, or poorly operated—in other words, “bad” projects bloated with creative marketing and Ponzi schemes. Rather, consumer education is the “best defense” against such projects.

On the other hand, projects that make “little mistakes” but otherwise have solid business models and good teams may otherwise merit financial assistance.


Finally, there are those “great projects” that are barely holding on. Due to a lack of cash, they can either wait for a cash infusion or explore acquisition opportunities.

In recent weeks, many distressed companies have turned to Binance, all predictably claiming to be in the third category. This forced Binance to carefully study them all and start making decisions on every nuance. “There is some subjectivity in that,” CZ said.

Leverage: fast and slow

The CEO also touched on the topic of leverage, where companies take out loans using cryptocurrencies as collateral, often in order to increase their position.

Leverage played a key role in the June market crash as several lending platforms saw their riskier lending positions approach liquidation and their crypto collateral dropped in value.

Celsius, for example, was forced to indefinitely suspend all withdrawals from the platform as it received liquidity to refinance its loan. Shortly thereafter, Babel Finance was forced into a similar position due to its involvement with 3AC, which was also taking on several risky loans.

CZ distinguishes between two types of leverage in the crypto ecosystem: fast and slow.

Fast leverage is often associated with trading futures products on centralized exchanges. If there is any liquidation cascade, it tends to start and end very quickly with this leverage. For example, on March 12, 2020, Bitcoin crashed from $8,000 to $3,000 in one day due to this leverage, but quickly recovered.

On the other hand, today’s market seems to be suffering from slow leverage – when funds lend to other funds and defi protocols for investment. The cascading effect of this leverage can often spread much more slowly, and problematic platforms also take longer to recognize.

“I believe we haven’t seen the end of them yet,” CZ concluded.

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