Binance has announced that they are delisting all 25 of FTX’s leveraged tokens. Binance claims they are doing this due to a lack of understanding among users about how leveraged tokens work, but reading between the lines, customers probably were very angry over these self-liquidating leveraged tokens.
FTX is a crypto derivatives exchange, and the leveraged tokens were essentially a way to do derivatives trading just by holding a token on Binance. The tokens had up to 3X leverage, and users could bet on the market going up or down for Bitcoin (BTC), Ethereum (ETH), EOS, Binance Coin (BNB), and Ripple (XRP).
The good thing with these leveraged tokens is that if a bet is successful the tokens will automatically re-invest, and the number of tokens being held will grow. However, if the bet goes wrong, the tokens self-liquidate.
FTX claims that these leveraged tokens sell off some of their position at certain points in an attempt to prevent total liquidation, but the reality is that if the market falls hard enough, a user’s tokens can suddenly liquidate.
Earlier this month when crypto prices rapidly declined, it is likely that numerous leveraged token users on Binance lost all of their tokens, and this may be why Binance is delisting the leveraged tokens.
Indeed, at least when Bitcoin (BTC) loses value, users will still have the same amount of Bitcoin (BTC), and their Bitcoins (BTC) will not self liquidate for any reason. On the other hand, these leveraged tokens can instantly liquidate themselves during rapid price movements, which must be an excruciating experience for users.