Binance recovery fund for liquidity crises: Many considered FTX a pillar of the crypto community, with the exchange standing as one of the largest in the world. That is what made its sudden liquidity crisis and collapse such a blow to investors and traders, leaving them shocked and nervous. Binance now looks to ensure similar issues do not happen to other strong projects facing a liquidity crisis by starting a recovery fund.
Liquidity in cryptocurrency: The simple definition of liquidity when talking about cryptocurrency is how easy it is to convert the digital currency or token to another asset or cash. However, there is the additional condition of being able to do so without impacting the price.
- Liquidity reduces investment risk, allowing for price stability and decreased volatility. It is ultimately a key indicator of a healthy market.
- Bitcoin and Ethereum are near the top of the list when it comes to liquidity, with Bitcoin being a highly liquid asset most of the time. While it all depends on market conditions, there is a reason these are more stable crypto assets.
Binance recovery fund: In a tweet on Monday, Binance CEO Changpeng “CZ” Zhao spoke about an industry recovery fund. The goal of the Binance recovery fund is to help rebuild the industry, with CZ specifically pointing out “projects who are otherwise strong, but in a liquidity crisis.” In his words, the efforts will “reduce further cascading negative effects of FTX.”
- The tweet instructed those who believe they qualify to reach out to Binance Labs, promising more details in the future. He also posted a continuation in which he invited other “industry players” to co-invest.
- The message was that crypto is sticking around and only needs to be rebuilt in the wake of the FTX disaster.
- Binance’s BNB token went up 3% after the announcement. Bitcoin and Ether also saw gains of 4%.
Binance recovery fund finds industry support: Other players in the industry showed their support for the Binance recovery fund, including Tron founder Justin Sun. He said that Tron, Huobi Global, and Poloniex would support the initiative. The statement was later confirmed by a tweet from Huobi Global.
It is not Binance’s first fund: Binance is the largest cryptocurrency exchange in the world, and it holds a lot of influence. It has used its position before to help the crypto community as it faces tough times, including a fund to support Bitcoin miners, who have been hit particularly hard.
- Binance Pool put $500 million into the lending project, which is open to both private and public miners. However, it requires miners to pledge security in the form of digital or physical assets.
- They are not the only company opening lending pools to support miners. Decentralized finance (DeFi) platform Maple Finance and Jihan Wu, the founder of Bitmain, are among others supporting struggling individuals.
B20 Summit: CZ did not stop at announcing the Binance recovery fund. He has been vocal since the FTX collapse, and at the B20 Summit in Indonesia, he spoke about wanting the industry and regulators to take responsibility.
- Remarks by CZ included him mentioning the formation of an “industry association globally” with other industry players to attempt to deal with “common standards of business.”
Binance and FTX at odds: There is more going on behind the scenes than meets the eye. While the Binance recovery fund targeted at dealing with liquidity crises is largely in response to the FTX collapse, CZ mentioned FTX would not qualify for it when questioned on Twitter. He said that it was not for FTX and instead for other projects within the industry. In regards to FTX, he added, “liars or fraud never qualify as strong projects.”
- At one point, Binance intended to acquire the failing crypto exchange, but after reviewing its books and structure, it pulled out. Binance said, “Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.”