Original | Odaily Planet Daily ( @OdailyChina )
Author: Golem ( @web3_golem )
On April Fools Day, April 1, when various project parties were still limited to Photoshop and memes, Binance sent a real nuclear bomb to the cold market. At 18:30 that afternoon, multiple meme coins that have been listed on Binance spot, such as ACT, DEXE, HIPPO, KAVA, BANANAS 31, TST, PNUT, etc., almost simultaneously experienced flash crashes, with ACT falling as much as 50%.
Wintermute crashes the market? Binance changes the rules?
The rapid decline caught the market off guard. Who is selling “value coins”?
The market first pointed the finger at Wintermute, a market maker that often makes markets for Meme coins. According to on-chain data , Wintermute liquidated a large number of Meme coins it held at the same time, including ACT, BONK, ai16z, BONk, TST, BABYDOGE, MUBARAK, BANANA, BROCCOLI, TUT and other tokens, among which the tokens sold were highly overlapped with the tokens that experienced flash crashes.
But Wintermute does not want to take the blame for the crash. Wintermute founder and CEO Evgeny Gaevoy said on social media that Wintermutes on-chain sell-off had nothing to do with the Meme crash. Wintermute only reacted after the price changed and conducted AMM arbitrage. Wintermutes clarification is reasonable because CEX and on-chain are essentially two liquid markets, and there will be a significant delay between dumping and on-chain liquidation.
Subsequently, some community members analyzed that the flash crash of ACT and other meme tokens was caused by Binance adjusting the contract rules. Coinkarma founder Benson Sun published an analysis on social media that the sudden 50% flash crash of ACT was caused by Binance adjusting the leverage position limit of ACT. A maximum of 4.5 million US dollars can be opened with a leverage of 1x. Some market makers’ positions exceeded the limit and were directly closed at the market price. After the contract price collapsed, there was a huge price difference with the spot price, so the spot price also collapsed.
This time, Binance released the announcement of adjusting the leverage and margin of 7 U-based perpetual contracts at 15:32 on April 1, and the effective time was 18:30 on April 1, which coincided with the flash crash of tokens such as ACT, and the user reaction time was less than 3 hours.
0x Wizard, a well-known ACT builder, also expressed dissatisfaction : ACT was damaged today, with the highest floating profit of 10m+, but now the overall profit is only 1m. This is a lesson worth 10m. This version does not encourage builders. Remember to support them when they are listed on Binance.
Binance clarification
In response to the doubts, He Yi, the first customer service of Binance, also responded that the team is preparing to reply with details. A few hours later, Binance issued an announcement regarding the flash crash of low-market-cap tokens. Binance explained that the decline was essentially caused by the four major users of the platform selling a total of $1.05 million worth of tokens, rather than Binance adjusting its rules. The announcement is as follows :
Recently, we found that some small-cap tokens have experienced a series of declines. After investigation, it was found that three VIP users cross-sold ACT tokens worth about 514,000 USDT in the spot market in a short period of time, and a non-VIP user transferred a large amount of ACT from other platforms and sold tokens worth 540,000 USDT in the spot market in a short period of time. When the ACT price fell, some users closed their futures contracts, which led to the decline of other tokens. No single account with large profits has been found so far. Since the tokens are all circulated in the secondary market, the platform cannot intervene in any selling behavior of users. We will continue to investigate this incident, and Binance will further synchronize relevant details if there are any updates.
Binance regularly adjusts leverage ratios based on the liquidity, market sentiment, and trading volume of all trading currencies. In order to prevent potential volatility and risks in advance, we have taken preventive measures to reduce leverage ratios. Binance Futures has recently issued adjustment announcements for ACTUSDT perpetual contracts. During this period, there was no market movement, and no user positions were actively reduced. Market makers are an important part of the industry ecosystem. Binance also provides a complete market maker program to encourage more market makers to join Binance and improve market liquidity.
The market has been volatile recently. In order to ensure the safety of users assets and reduce trading risks, Binance will make timely adjustments to leverage according to market conditions to avoid systemic risks in the entire trading market. Binance also reminds all users to do a good job of risk management.
Equation News said in a post that Binances initial findings were inaccurate because they only looked at trading data in the spot market. The big sell-off was actually caused by a sell-off in the perpetual contract market, with a total of $27 million in sell orders detected during the crash. However, Equation News still believes that this has nothing to do with Binance, and speculates that it was the result of the surrender of the big ACT dealers after maintaining high contract positions for several months but still failing to ignite the market.
What is the truth?
Even though Binance has given its own explanation and the community has made various inferences based on data, the consensus reached in the end seems to be that the change in Binance contract rules was the trigger for this decline, triggering a chain reaction among market makers and large investors. But is this really the case?
In fact, yesterday was not the first time that Binance adjusted the contract rules of tokens such as ACT. On March 28, Binance announced that the leverage of ACT contracts would be adjusted from 25 times to 10 times. On March 31, it announced that the position limit of ACT contracts would be adjusted from the maximum position of 9 million US dollars to 4.5 million US dollars. During this period, there was no change in the market. The latest announcement on April 1 was to adjust the maximum position of ACT contracts from 4.5 million US dollars to 3.5 million US dollars. The adjustment range was lower than the previous two times. Why did there not be a sharp drop in the chain in the previous two times? It does not seem reasonable to directly blame Binance for changing the rules for this sharp drop.
At the same time, was the selling of market maker Wintermute really for arbitrage? Did the selling of $1.05 million by four major Binance users scare away market makers? Not all the Meme coins sold by Wintermute were the tokens designed by Binance for this contract adjustment. Those tokens outside the contract adjustment also experienced flash crashes to varying degrees. How can this be explained?
Various doubts indicate that there may be something hidden behind this farce. People familiar with the matter revealed to Odaily that the plunge and the large-scale exodus of Wintermute were caused by the theft of tokens from an unknown market maker. Because of the hackers reckless selling, Wintermute chose to actively sell related Meme coins at the same time. If it was a normal decline caused by market factors, there should be market makers to support the tokens, so as not to cause a situation where there was no rebound after the flash crash.
