Binance’s Market Crash Explained: A Detailed Overview
TLDR
- Binance claims that the $0 token prices during Friday’s market crash were due to a user interface bug, not actual market crashes.
- The exchange states that changes in decimal places for trading pairs caused the zero prices to appear improperly.
- Traders suspect that Binance may have been exploited through its Unified Account feature, using internal price data.
- Binance has pledged $283 million in compensation for users liquidated during the recent Ethena USDe depegging event.
- Users reported account freezes and failed stop-loss orders during the massive $20 billion liquidation episode.
On Sunday, Binance addressed alarming reports about many cryptocurrency tokens displaying $0 prices on its platform during a significant market downturn on Friday. The exchange insists that these reported prices were mere user interface errors and not reflections of actual market values, aiming to reassure its users amidst the turmoil.
UI Glitch or Market Manipulation?
In a statement, Binance attributed the surprising and concerning price anomalies to two primary factors:
- Execution of legacy limit orders amidst relatively thin liquidity, with some of these orders dating back to 2019 (e.g., IoTeX and Cosmos).
- User Interface display errors that showed $0 prices due to changes in tick sizes affecting the minimum price movement for certain trading pairs.
A crypto analyst on Twitter, Wu Blockchain, confirmed these anomalies, emphasizing that while the display may have shown misleading prices, actual order execution remained unaffected.
Many tokens, including Enjin and IoTeX, appeared to crash to $0 on Binance during this chaotic event, while other trading platforms maintained normal price levels throughout the sell-off.
The Exploit Theory Centers on Unified Account Feature
An intriguing theory emerged suggesting that the exploit may have resulted from Binance’s Unified Account feature, which aggregates price data from its internal order books rather than relying on external oracle feeds. Analyst ElonTrades highlighted that manipulation appeared to coincide with Binance’s plans to switch to these external sources.
Reporting that certain tokens, including USDe, wBETH, and BNSOL, were manipulated directly around the time of their price depegging, ElonTrades pointed out correlations in the cryptocurrency charts, arguing that the manipulation took place before altcoins hit their bottom levels during liquidation.
However, Binance’s proactive announcement to shift to external oracle feeds, scheduled for Tuesday, raises questions about whether bad actors might have taken advantage of this transitional period.
The most affected token was Ethena’s USDe, which fell sharply to $0.65, well off its dollar peg on Binance, while managing to stay stable on other exchanges. This unusual price behavior likely triggered significant liquidations, estimated to cost around $1 billion, as the cascading effect of the token’s instability reverberated through the broader market.
Technical Failures and User Complaints
The severity of the market crash was matched by widespread complaints from traders experiencing technical difficulties during the event. Many users reported that their accounts had frozen, restricting their ability to execute trades or manage their positions effectively.
Compounding the frustration, numerous stop-loss orders failed to activate, trapping traders in losing positions as prices plummeted. Though Binance acknowledged system delays caused by intense trading volume, the exchange emphasized that user funds remained secure throughout the ordeal.
Similar technical glitches were reported across other major exchanges, including Coinbase and Robinhood, reflecting the broader strain on cryptocurrency platforms during the chaotic market conditions.
Compensation and Investigation Calls
In response to the fallout from the USDe depegging, Binance has committed to providing $283 million in compensation to affected users. However, details regarding the distribution methods and eligibility criteria remain unclear, leaving many users anxious about their recourse.
In light of these events, Kris Marszalek, CEO of Crypto.com, has called for regulatory investigations into exchanges that faced severe losses during the market crash. His comments underscore the urgency and seriousness of the situation in the cryptocurrency exchange landscape.
Meanwhile, reports continue to trickle in from users about ongoing issues related to withdrawals and peer-to-peer transactions on Binance. While the exchange claims that its systems are operational, it has yet to tackle these lingering user complaints. Moreover, there has been no announcement about a timeline for resolving ongoing technical problems or providing additional compensation beyond those directly impacted by the depeg.
As traders and investors navigate this turbulent landscape, the unfolding events will likely lead to increased scrutiny of exchanges, calling for a more transparent and reliable trading environment.
