Changpeng Zhao: Binance will help ‘good’ crypto projects weather the crisis

As one of the industry’s leading players, Binance is ‘obliged’ to protect users and help others in the sector survive. However there are ‘bad projects’ that should not be rescued, said the exchange’s chief Changpeng Zhao.

“As you know, current market conditions are challenging. Since we are one of the largest players in the industry with healthy cash reserves, we are obliged to protect users. We are also obliged to help industry players survive and thrive. This is true, even if there is no direct benefit for us and we face negative ROI.” — he wrote.

On June 19, Sam Bankman-Fried, the head of the cryptocurrency exchange FTX, expressed a similar view. Speaking on National Public Radio, he said that his company “must intervene, even if it is to its detriment,” to stop the “contagion” across the industry.

Zhao noted that some companies and products are poorly designed, managed incompetently and exploited with flaws. In his words, better projects will replace these, and therefore they should not be rescued.

“In short, these are simply ‘bad’ projects. They should not be rescued. Unfortunately, some of them have a large user base, partly acquired through inflated incentives of ‘creative’ marketing or outright Ponzi schemes,”

Earlier, SEC Commissioner Hester Peirce stated that participants in the crypto industry should not back projects that are in trouble due to negative market phenomena. She explained that this only harms the industry.

According to Zhao, the best defence for users is education. He argues that industry participants and government bodies should launch initiatives aimed at boosting financial literacy among the population.

The Binance chief stressed that there are many problematic projects in the industry, but the shortcomings of some can be fixed. He said such players “can be taken under our wing.”

He added that this also applies to products that “barely survive, but have potential.”

Zhao also touched on leverage in the crypto industry. He noted that because of the impact of the latest crisis, the downturn in the sector has not yet run its course.

“I believe the key difference between the current bear market and the events of 2018 is that there is a lot of leverage in our industry now,” explains the head of Binance.

According to him, leverage can be divided into two categories — fast and slow. The first includes margin positions on centralised exchanges, which are liquidated quickly in the event of market shocks.

The second category includes the credit positions of large industry players such as funds and DeFi protocols.

“When one of them is liquidated, affected creditors usually need several days or weeks to realise and come to terms with the pain. This also has a cascading effect, but the speed of its spread is much slower. I believe we have not yet seen the end of these problems,”

Back in June 2022, Zhao stated that the crypto winter is an appropriate time for hiring new staff and pursuing growth through acquisitions.

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