Binance CEO Changpeng Zhao Slams Crypto Bailouts

The central theses

  • Binance CEO Changpeng Zhao has criticized the practice of extending bailouts to failing crypto companies.
  • Zhao also chimed in to criticize excessive leverage across the industry.
  • The statement follows news that rivals FTX and Alameda Research recently issued loans to struggling crypto companies.

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Binance CEO Changpeng Zhao has issued a note summarizing his views on bailouts and leverage in the crypto industry. His comments come just days after reports circulated in the media that rival crypto exchange FTX had bailed out several large and struggling crypto companies.

“Bailout packages make no sense here”

Changpeng Zhao has offered his views on bailouts and the consequences of the industry’s over-leveraging.

in one a notice Released Thursday, the CEO of the world’s largest crypto exchange wrote that ill-designed, ill-managed and ill-operated companies should not be bailed out. “Bailouts don’t make sense here,” he explained, stressing that the industry should not perpetuate “bad” companies, but let them fail and replace them with better ones.

Zhao also stressed that the issue is not binary and that “not all bailouts are created equal.” He argued that bailouts may remain a viable option for companies with solid business models and product market adjustments that may have made small, recoverable mistakes like aggressive spending and maintaining insufficient reserves. “These can be salvaged and then ensure changes are made to address the issues that led them to this situation in the first place,” he wrote.

Zhao’s comments come days after reports that rival exchange FTX and affiliated leading major trading firm Alameda Research had extended lines of credit to crypto lenders BlockFi and crypto broker Voyager Digital. Both firms became embroiled in serious bankruptcy woes after a wave of liquidations swept the industry, including the potential bankruptcies faced by crypto lender Celsius and crypto hedge fund Three Arrows Capital. Commenting on the $250 million loan injection for BlockFi, FTX CEO Sam Bankman-Fried said, “We take seriously our duty to protect the digital asset ecosystem and its customers.”

In today’s bailout note, Zhao also acknowledged Binance’s responsibility to protect users and help industry players survive and thrive, including at their own expense. Despite many projects reportedly approaching Binance for engagement and speaking, the exchange is not known to have helped any of them or extended a line of credit.

Zhao, who at one point was among the richest people in the world, concluded the note by saying that the crypto industry has shown tremendous resilience and that stakeholders should use the current situation as an opportunity to “repeat proper risk management and the to enlighten masses.”

Disclosure: At the time of writing this article, the author of this article owned ETH and several other cryptocurrencies.

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