Changpeng Zhao acknowledged the company’s responsibility to help the industry survive and thrive but stressed that some “bad” companies should nevertheless be left to fail.
Key Takeaways
Binance CEO Changpeng Zhao has criticized the practice of extending bailouts to failing crypto companies.
Zhao also weighed in to criticize excessive leverage seen throughout the industry.
The statement comes on the heels of news that rivals FTX and Alameda Research had recently extended credit to struggling crypto companies.
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Binance CEO Changpeng Zhao has issued a note summarizing his opinion on bailouts and leverage in the crypto industry. His comments arrive only a few days after reports of the rival crypto exchange FTX bailing out several large and distressed crypto companies began circulating in the media.
“Bailouts Here Don’t Make Sense”
Changpeng Zhao has voiced his opinion on bailouts and the consequences of the excessive leverage percolating the industry.
In a note published Thursday, the CEO of the world’s largest crypto exchange wrote that poorly designed, poorly managed, and poorly operated companies should not be saved. “Bailouts here don’t make sense,” he explained, stressing that the industry shouldn’t perpetuate “bad” companies but rather let them fail and allow better ones to take their place.
Zhao also stressed that the issue isn’t binary and that “not all bailouts are the same.” He argued that bailouts could remain a viable option for companies with sound business models and product-market fit that may have made small, fixable mistakes like aggressively spending and preserving insufficient reserves. “These can be bailed out and subsequently ensure changes are made to fix the problems that led them to this situation in the first place,” he wrote.
Zhao’s comments arrive days after the reports that the rival exchange FTX and affiliated leading principal trading firm Alameda Research had extended credit lines to crypto lender BlockFi and crypto broker Voyager Digital. Both firms got engulfed in serious insolvency issues after a wave of liquidations rippled across the industry, including the potential bankruptcies faced by crypto lender Celsius and crypto hedge fund Three Arrows Capital. Commenting on the $250 million credit injection into BlockFi, FTX CEO Sam Bankman-Fried said, “We take our duty seriously to protect the digital asset ecosystem and its customers.”
In today’s note on bailouts, Zhao also acknowledged Binance’s responsibility to protect users and help industry players survive and thrive, even at its own expense. However, despite many projects allegedly approaching Binance to engage and talk, the exchange is not known to have bailed out or extended a credit line to any of them.
Zhao, who at one point ranked among the top wealthiest people in the world, concluded the note by saying that the crypto industry has shown tremendous resilience and that stakeholders should take the current situation as a chance to “reiterate proper risk management and educate the masses.”
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.
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