The CEO of the world’s largest cryptocurrency exchange Binance, Changpeng Zhao aka CZ, shares his thoughts on bailouts and crypto leverages amid the current crypto winter situation.
In the blog post, CZ categorizes web3 projects as bad, fixable, and projects that will survive, but barely.
The Binance CEO says that bailouts in the situation of bad projects make no sense, and urges the community to not keep these terrible businesses around.
“Let them fail. Let other better projects take their place, and they will,” CZ says.
CZ feels that people need to be educated on financial literacy, risk management, diversification, and how to evaluate fundamentals like revenue, etc, to avoid falling into such situations.
In the case of fixable projects who either have excessive expenditure, insufficient funds, etc, they could also carry good traits like product-market fit, revenue generation in typical market conditions, solid business models, competent teams, etc.
CZ believes that such projects can be bailed out after making sure that the issues causing them to get into this predicament in the first place are fixed.
The third category is a little bit tricky as they may either wait it out, receive a capital infusion, or look at Merger and Acquisitions options.
Binance apparently was contacted by a lot of projects that desire to interact and communicate.
CZ says that all the projects think they belong in the third category, and the Binance team needs to look at each project in detail to decide who they should support.
The Binance CEO’s bailout comments come at a time when the market is going through a ‘crypto winter’ with multiple firms closing down and going through a liquidation crisis.
Two days back, BlockFi secured a $250M credit line from crypto exchange FTX after signing a term sheet providing BlockFi with access to further capital. This did receive backlash from the community because they didn’t understand why FTX is bailing out a sinking ship.
CZ stressed the crypto leverage topic saying that the industry has more leverage now than there was during the bear market in 2018.
He categorizes crypto leverage as fast and slow. On centralized exchanges, CZ says users can get quick leverage, frequently with futures products.
When funds lend to other funds or DeFi protocols to invest, this is known as slow leverage. The impacted lenders often take a few days or weeks to understand or accept the suffering when one of these is liquidated.
It seems like CZ is hopeful that the market will rebound eventually but people need to be educated and learn proper risk management meanwhile.
CZ ends the note by saying “If two years ago, on March 12, 2020, you told me bitcoin’s price would be $20,000 in June 2022, I would be pretty happy. So, why not zoom out for a more balanced perspective?”