Binance, the world’s largest crypto exchange, has decided to delist leverage crypto tokens from its platform. The decision led to mixed reactions from users; some supportive and others wanting the leverage tokens to remain on Binance.
What are leveraged crypto tokens and why is Binance delisting them?
On futures exchanges like Binance Futures, FTX, Bybit, and BitMEX, users can trade cryptocurrencies such as Bitcoin and Ethereum with leverage of up to 125x.
That means, with $100, a user could trade up to $12,500 in capital, essentially using debt to trade in a more risky environment.
Spot exchanges, however, merely allow users to buy or sell crypto assets; users cannot borrow capital or use leverage to place additional risk for higher reward.
Leveraged crypto tokens supplement the benefit of a futures contract and high leverage trading. It allows users to buy a leveraged version of a crypto asset, and when the price goes up or down, the return is amplified by 3x leverage.
For example, the native cryptocurrency of Binance is called Binance Coin (BNB). If the price of Binance Coin rises from $12 to $13.2, it increased by 10 percent and the investor would net a 10 percent return.
A leveraged BNB token, which on Binance was called BNBBEAR and BNBBULL, multiplies the returns by three times. That means, if the price of BNB increased by 10 percent, the net loss or net gain from the trade would be multiplied by three times when trading the leveraged token.
On March 29, Binance CEO Changpeng Zhao said that Binance will be delisting leveraged crypto tokens because many users still do not fully understand the tokens.
Zhao emphasized that the leveraged crypto tokens brought significant volume to Binance and it would be “bad for business to delist them,” but the company made the decision to protect its users.