Binance CEO Changpeng Zhao is cracking down on wash trading occurring on its crypto exchange following the firm’s decision to remove fees for Bitcoin spot trades.
Wash trading is when when traders sell and buy assets from themselves or make otherwise fictitious trades. For example, NFT marketplace LooksRare sees plenty of wash trading because of its LOOKS token, which is earned by using the site.
A community manager at Mandala Exchange noticed on Friday that a large volume of Bitcoin had been suddenly traded within a short period of time, but Bitcoin’s price had barely changed. This suggested that a large number of traders were buying and selling, keeping the price more or less stable.
“Think this is due to zero fees and people trying to gain VIP tiers,” Zhao explained, adding that Binance would “exclude BTC trading from VIP calculations” and “remove all incentives to wash trade” on the exchange.
Think this is due to zero fees and people trying to gain VIP tiers. We will exclude Btc trading from VIP calculations. Remove all incentives to wash trade. Announcement with details coming shortly. https://t.co/5wm4uPAudX
Binance currently has nine different VIP tiers, each of which lower user fees for all currencies listed on the exchange. The more funds a user has spot traded within 30 days, the higher their VIP tier will be.
A tier system that rewards high trading volumes, offers perks for trading, and charges low to no fees can be vulnerable to manipulation and wash trading.
Within hours, Binance issued an announcement excluding its 13 different Bitcoin spot pairs (i.e. BTC/BUSD) from VIP tier benefits and its spot liquidity provider program. The changes were made to “ensure a fair trading environment for all users,” the company said.
The exchange made the decision to remove Bitcoin spot trading fees on its fifth anniversary. Compared to other struggling crypto companies like BlockFi and Celsius or exchanges like Coinbase and Gemini, which are laying off employees, Binance appears to be holding strong through the bear market.
Last month, it announced it would be sponsoring musician The Weeknd’s upcoming world tour, and a few weeks later unveiled a substantial social media and NFT partnership with Cristiano Ronaldo, soccer star and the most popular person on Instagram.
But Zhao has some thoughts on FTX’s strategies as well—specifically, when it comes to FTX loaning funds to ailing firms and possibly acquiring said firms at a later date.
“I would never do that type of deal,” Zhao told Decrypt.
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