Bailouts are not inherently wrong and can be done for crypto projects as long as they happen only for projects that “are fixable” and “have potential,” according to Binance CEO Changpeng Zhao (CZ).
The clarification from the Binance CEO comes after Alameda Ventures, the venture arm of FTX‘s parent Alameda Research, bailed out the crypto platform operator Voyager Digital. The bailout – which has become a topic of discussion in the crypto community – came after the troubled crypto hedge fund Three Arrows Capital apparently failed to repay a loan to Voyager.
In his article, published on Binance’s website, CZ said there are many projects, in crypto or elsewhere, that should not be bailed out. According to him, these all fall into one of the three following categories:
- Poorly designed
- Poorly managed
- Poorly operated
Bailouts for projects that fit into one of these categories “don’t make sense,” CZ wrote.
“Don’t perpetuate bad companies. Let them fail. Let other better projects take their place, and they will,” he added.
For other types of projects, however, CZ said bailouts can make sense. These include projects that “have problems but are fixable,” and projects that are “barely surviving but have great potential.”
For the first of these, he said bailouts can be done as long as “changes are made to fix the problems that led them to this situation in the first place.”
Meanwhile, CZ hinted that projects that have great potential but struggle financially are among the most attractive to companies looking to make acquisitions and that this is something Binance has worked on in recent weeks.
“Many projects have come to us who want to engage and talk,” CZ said, admitting that the categories he outlined are “are not clear labels.”
“All projects view themselves as the third category, and we need to look at each project in detail to decide. There is some subjectiveness to it,” the exchange boss said.
More leverage than in 2018
Further, CZ also said that there is now more leverage in the crypto industry than during the downturn in 2018.
In particular, this is the case for what he called “slow leverage,” meaning capital that is borrowed by firms to make investments. This differs from “fast leverage,” which is typically leverage for trading on centralized exchanges that gets liquidated quickly if collateral ratios cannot be maintained, the CEO explained.
He added that it is “slow leverage” getting liquidated that has led to the latest market crash for crypto. And since the propagation speed here is slower, it is harder to tell exactly when all the liquidations that need to happen have happened, he said.
“I believe we have not seen the end of these yet. Luckily, the more these cascading events happen, the number becomes smaller and more spread out,” the CEO said, before concluding with a more optimistic perspective:
“If two years ago, on March 12, 2020, you told me bitcoin’s price would be [USD] 20,000 in June 2022, I would be pretty happy. So, why not zoom out for a more balanced perspective? With this in mind, let’s take the situation as a chance to reiterate proper risk management and educate the masses.”