Binance Delists Leveraged Tokens: “Many Users Don’t Understand Them”

TL;DR: Recently, Changpeng Zhao (CZ), CEO of Binance, explained the cryptocurrency exchange’s decision to delist popular leveraged tokens (LT) is due to finding “many users don’t understand them. Even with pop-ups warning users each time, people still don’t read it.”  

Binance Delists Leveraged Tokens

As crypto finance instruments go, leveraged tokens are proving exotic and perhaps a bit too complicated for nascent investors. An iteration on margin trading, a main difference is the lack of a need for collateral. LTs are ERC20-based, and are said to be potentially advantageous in managing risk, as they “automatically reinvest profits into the underlying asset. If your leveraged token position makes money, the tokens will automatically put on 3x leveraged positions with that,” according to BitMax.

Traders find similar incentives on loss side potential, as LTs have an auto-sell feature if markets plummet, which can prevent forced liquidation. They’re also easy to buy, “no need to manage collateral, margin, liquidation prices, or anything like that,” BitMax notes; traders buy the LT and automatically have leverage on a long coin, for example. And because they’re ERC20s, LTs can be withdrawn to a typical Ethereum wallet.

“Given [LTs] are some of the most actively traded [tokens],” CZ continued, “it is bad for business to delist them. Not an easy choice.” The charismatic co-founder of Binance acknowledged leveraged tokens and their mitigation of risk, but insisted “they will devalue over time as markets fluctuate up and down. They are not meant for long term holding. If you have an unrealized loss, holding for a come back is unlikely to work.”

Nevertheless, CZ stressed the decision came down to “protecting users,” further suggesting traders would learn to appreciate the wisdom of delisting in time. When asked by eager users if perhaps something less drastic than complete removal of LTs might be possible, like providing different tabs to separate them from other trades altogether, Zhao answered, “That’s discussed as well. We will continue to look for more innovative solutions, but what has to be done now has to be done.”

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