Zhao Warns Against Using Your Own Token as Collateral

Zhao cautioned against using a token you created as collateral, or borrowing money if you run a crypto business.

Changpeng Zhao – the CEO of the world’s leading cryptocurrency exchange Binance – has outlined two vital lessons following the saga between his company and FTX. Firstly, Zhao emphasised the importance of having a clear and concise vision when running a business. He stated that a business needs to have a clear purpose and goals in order to be successful.

I believe that crypto exchanges should not use their own tokens as collateral, and that individuals should never borrow money to run a crypto enterprise. This is because I believe that doing so creates unnecessary risk and can ultimately lead to the failure of the enterprise.

  • Binance's executive is right - a company's collateral should not consist of coins it has developed and launched. This is because using BNB for this purpose would be a huge conflict of interest. Binance has never used BNB for this purpose, and this is a good thing. This shows that Binance is committed to being a fair and transparent trading venue.
  • Zhao's second "big" lesson is that people should not borrow funds to run a crypto business. He added that having a "large reserve" is a key factor when operating such an entity. Zhao's advice is sound, and it's something that all aspiring crypto entrepreneurs should take to heart.
  • CZ's vision for crypto exchanges is one of full transparency, achieved through 'merkle-tree proof-of-reserves'. This would allow users to see exactly how much cryptocurrency an exchange is holding at any given time. Binance is planning to implement this soon, which could set a precedent for other exchanges to follow suit.
  • The problems for FTX began when Binance announced that it would liquidate all of its FTT holdings. This sent the token's value plunging, and it is now over 75% down from its pre-announcement levels. FTX is currently in a difficult situation, and it remains to be seen how it will recover from this setback.
  • Sam Bankman-Fried (SBF) – CEO of FTX – said the price dump should not be a concern since the trading venue has sufficient funds to cover users’ holdings. “FTX is fine, assets are fine,” he claimed at first. It is understandable that some users might be concerned about the recent price dump on the FTX platform.
  • Binance, one of the world's leading cryptocurrency exchanges, has confirmed that it will acquire troubled firm SBF. CZ, the CEO of Binance, explained that his organization will help FTX navigate its current "liquidity crunch." This unexpected move is sure to shake up the cryptocurrency world.
  • The ongoing saga between the two leading entities in the cryptocurrency world and the recent crash of the FTT exchange have caused considerable panic in the industry and a broad market collapse. Bitcoin, for one, has lost over 10% of its valuation in the past two days, while the global market capitalization has dropped way below $1 trillion. This situation has led to renewed calls for regulation in the industry in order to protect investors and stabilize the market.

The Binance-FTX saga has been a big lesson for the crypto community. First, it showed that centralized exchanges are vulnerable to hacks and can lose customer funds. Second, it showed that decentralized exchanges are much more secure and can provide a better user experience.