Just two months after adding them, major cryptocurrency exchange Binance has decided to delist all of its FTX leveraged tokens and their corresponding trading pairs. It cited its users’ lack of understanding of how these tokens work as the main reason for the removal.
According to today’s announcement, Binance will delist all of the tokens at 10am on March 31. Those holding the token must trade out of their existing leveraged token positions or withdraw their assets two hours earlier.
If not, Binance promises to credit the accounts of anyone who still holds the token “with the equivalent value held in each leveraged token at the time of delisting in BUSD and within 14 days.”
What are leveraged tokens?
Granted, leveraged tokens are horribly complicated, but here’s the rough idea:
It’s advantageous for crypto traders to hold leverage positions that, essentially, allow them to trade far more cryptocurrency than they own.
They can use that extra capital to place large bets on the future prices of cryptocurrencies, and profit if they’re correct. But betting more than you own is dangerous; if you can win big, you can lose big.
Usually, traders do all of this manually through something called margin trading, a service offered by most crypto exchanges. But buy leveraged tokens and they just…do all that work for you.
Leveraged tokens work a little like automated trading bots, in that they automatically reinvest any profits made from these bets. But they reinvest in such a way that minimizes (but far from eradicates) risk. Still, they’re not designed for long term holding—they devalue over time as markets fluctuate.
These tokens can be issued and redeemed through derivatives exchange FTX. But, since they’re Ethereum-based ERC-20 tokens, they can be traded like any other token. Binance started listing the tokens in January 2020. It announced its investment in FTX Exchange in December 2019.
Too complicated for some
Despite Binance’s best efforts to educate its users about leveraged tokens—and warn people about the dangers of the tokens—”we find many users don’t understand them,” Binance CEO Changpeng Zhao tweeted today.
“Even with pop-ups warning users each time, people still don’t read it,” he said. “Protecting users comes first,” said Zhao—and that seems to include protecting users from themselves, too.
From trading amounts, it is clear that many Binance customers understand exactly how leveraged tokens work and how to use them.
For Binance’s pairings with the popular US dollar-pegged stablecoin, Tether, ETHBULL traded $31 million for ETHBEAR traded $54 million in the past 24 hours. “Given they are some of the most actively traded token[s], it is bad for business to delist them. Not an easy choice,” he added.
Some on Twitter were skeptical of the news, particularly since margin trading—essentially, manual leverage trading—is far riskier.
Perhaps Binance doesn’t understand how leveraged tokens work, either.