Key Takeaways:
- Venus liquidations threaten BNB and Binance Chain as a whole.
- Why did BNB lose its stability, and what’s CZ’s plan to rebuild it?
- The CEO has lost his credibility, which could exacerbate the liquidation rate.
YEREVAN (CoinChapter.com) — The Binance exchange has come under public scrutiny due to its shady BNB operations and the artificially maintaining collateral threshold to bolster the coin above a widely-discussed liquidation margin near $212.
The FUD began with a potential liquidation scare related to a prior Binance Chain exploit involving Venus Protocol. The “exploiter” illegally minted 2 million BNB through a BNB Bridge. The culprit then deposited a 900,000 BNB stash onto Venus to borrow the mentioned $150 million of stablecoins.
However, with BNB price instability, the massive loan liquidation threatens more severe repercussions than FTX collapse. As the liquidations triggered considerable FUD and speculations about BNB’s shaky position, several clarifications are in order before the connection between the liquidations and the potential danger to the Binance empire is clear.
Liquidations on Venus are a danger for BNB Price
In detail, liquidation occurs when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin. In this case, the trader cannot meet the margin requirements for a leveraged position or fails to have sufficient funds to keep the trade open.
Sidenote: Venus Protocol runs on the BNB Chain. It holds a variety of tokens worth north of $612 million. $480 million worth of those tokens are borrowed by users against BNB.
Thus, large liquidations could send BNB prices quickly tumbling as the token is sold in the open market to save the loan.
Such a collapse could have a spiraling effect with far-reaching consequences for the entire crypto sphere (read FTX 2.0). Once the BNB price falls, other large positions could follow the liquidation storm, creating more FUD, which, in turn, quantifies into more withdrawals and liquidations.
For those out of the loop, Binance Smart Chain is the third largest DeFi ecosystem that locks $2.8 billion in TVL, collects $263 million in daily fees, and the stablecoin market cap on the chain equals $5.2 billion. Moreover, Binance Exchange is the largest crypto exchange globally. It had a trading volume of $5.3 billion in the last 24 hours and $3.7 trillion in the last seven days.
BNB Investors are focused on the $212 price level and for good reason
According to a crypto analyst Martin Folb(@martypartymusic), there is a reason Binance maintained BNB above $212. Binance allegedly has a BNB-backed loan liquidating at $212, down from $220 after the margin was added in June.
The analyst didn’t reveal the exact amount of this supposed loan. However, if it is massive enough, it could lead to a “fatal margin call” for the Binance exchange upon liquidation. In detail, investors who sell holdings to meet a margin drive prices down further, prompting further margin calls.
Thus, bigger troubles appear in the case of a broader decline in values.
Additionally, the liquidation of positions when margin calls aren’t met usually happens automatically in the crypto sector. I.e., smart contracts execute trades on previously agreed-upon conditions without interruption from either participant.
Thus, traders can’t argue creditors out of liquidation or postpone their repayment.
[Binance chief Changpen “CZ” Zhao] is in self-preservation mode selling BTC from the bc[…]77s3h wallet for TUSD and buying BNB to save his exchange chain from a fatal margin call. – US regulators are selling down the US Marshals holdings to force-liquidate BNB loans to drive CZ out of the industry.
said Folb.
Binance has allegedly liquidated its BTC holdings to bolster the BNB price. If that’s true, Binance is engaging in risky market behavior, threatening a BTC dump, which, as the FTX collapse demonstrated, could wipe billions of dollars off the entire sector.
Meanwhile, the BNB coin price dropped below $208 at 13:00 GMT, threatening the consequences.
As reported previously, a pseudonymous crypto analyst @CryptoCapo, warned his Telegram followers of BNB leading an impending market crash in mid-July. They shared similarities with FTX founder Sam Bankman-Fried’s tweets before the FTX went to zero.
So, BNB faces similar risks unless Binance has solid plans to preserve the token’s value, excluding the sale of Bitcoin and other token holdings.
