Chinese newspaper claims Three Arrows Capital sought loan from Binance

According to the South China Morning Post, companies that faced withdrawal issues turned to Binance to apply for lines of credit. Journalist Colin Wu also shared the information on his twitter on Wednesday (22).

Binance CEO Changpeng “CZ” Zhao, however, made it clear that Binance has not granted any credit lines for the redemption of these protocols. The CEO spoke specifically of Three Arrows Capital (3AC), a fund that is close to insolvency.

CZ also stated that Binance was not 3AC’s main source of trading resources and therefore has no relation to the fund’s case.

At the same time, the CEO of Binance wrote a text in which he addresses recent market developments. In the article he addresses leverage, ethical aspects and the role of the exchange in the current scenario.

The types of redemption

At the beginning of the text, CZ adopted a stance in favor of a union between the companies. In this sense, CZ stated that it was the market’s role to help companies survive, even if this does not generate an immediate return.

“We also have a responsibility to help industry players survive and, we hope, thrive. This is the case even if there are no direct benefits for us or we have negative ROIs,” he said.

However, CZ also criticized companies and business models in which activities are not well managed. He even cited that there are “bad, creative marketing inflated” projects and others that are nothing more than Ponzi schemes.

In these cases, CZ stated that he does not advocate any type of ransom. Instead, consumer education is “the best protection” against such projects.

On the other hand, projects that make “small mistakes” but have solid business models and good teams may deserve a bailout.

Finally, there are those “big projects” that are barely holding up. Because they are short on cash, they may wait for a cash injection or explore acquisition possibilities.

On the South China story, CZ admits that many companies have turned to Binance for loan lines. The exchange looked at all the cases and made different decisions, but CZ did not say which projects received credit and which did not.

Leverage: Fast and Slow

The CEO also touched on the topic of leverage, where companies make loans using cryptocurrencies as collateral, often to multiply their position. CZ makes a distinction between two types of leverage in the market: fast and slow.

Fast leverage is usually related to trading futures on centralized exchanges. If there is any kind of mass liquidation, it tends to start and end very quickly with this leverage.

For example, on March 12, 2020, Bitcoin dropped from $8,000 to $3,000 in a single day due to this leverage, but quickly recovered. That is, the movement was very intense and lasted a short time.

In slow leverage, funds make loans to each other and to decentralized finance (DeFi) protocols to invest. The effect of this leverage can spread much more slowly and platforms tend to take longer to identify issues.

For CZ, the current devaluation is responsible for the slow leverage, so the market has not fully recovered. “I don’t think we’ve seen the end of it yet,” concludes the CEO.

Leverage was key to the market crash in June, as several lending platforms saw their riskier positions approach liquidation while their crypto collateral dwindled in value.

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