Changpeng Zhao criticises idea of liquidity segregation in the crypto market

Some countries want to create a separate order book (liquidity) to effectively protect consumers. This conclusion was drawn by Binance CEO Changpeng Zhao after discussions with regulators.

From our interactions, some countries want a segregated orderbook (liquidity). This is a BAD IDEA for a number of reasons.

Large liquidity is one of the best Consumer Protection mechanisms. It protects against market manipulation, volatility, and reduces liquidations.

1/5

— CZ 🔶 Binance (@cz_binance) July 31, 2022

That is a bad idea for a number of reasons, he stressed.

Zhao is convinced that if implemented, ordinary users would suffer. They would lose tight spreads, low slippage and the best execution prices available under high liquidity.

The latter provides an important safeguard for their rights, as it would complicate market manipulation, reduce volatility and lower the likelihood of liquidations, he added.

The Binance CEO proposed a thought experiment and dividing liquidity across 180 countries. In his words, in this scenario it would be much easier for large traders to shake up the market, increasing the magnitude of price swings.

Arbitrage traders’ attempts would be less effective than a centralized order book. Their earnings would effectively be paid for by ordinary users, Zhao stressed.

Earlier, the CEO of Binance promised to focus over the next five years on creating and developing products and cooperating with regulators.

In 2021 Zhao published an open letter, in which he outlined the platform’s plans for regulatory compliance and client protection.

In September 2021 the head of the company said he abandoned the decentralized business model.

Before that, financial regulators in several countries, including the United Kingdom, the Netherlands, Italy, Poland, Japan, Thailand, Hong Kong, Singapore, South Africa and a number of others, issued warnings for investors about the exchange’s activities.

As noted, in 2022 approvals for the platform’s operation were granted by authorities in Spain,Italy, France, Bahrain, Dubai and Abu Dhabi.

Binance also announced the launch of a regulated exchange in Thailand and announced the opening of a customer service center in Turkey.

Earlier Zhao said he planned to obtain approval from the UK’s FCA.

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