Binance Casino again ripped off traders with DOWN tokens in a falling market
DOWN token scams from Binance casino we covered and devoted a whole section to it Fraud Binance with FTX BULL / BEAR tokens, we advise you to read it:- Continuation of the BULL/BEAR scam: UP/DOWN tokens - Binance-style casino
- Binance delisted FTX credit tokens after significant user losses, and a month later added their clones
- Continuation: Casino at Binance or "How 3164.93 USDT disappeared in 1 hour"
- Casino at Binance or "How 3164.93 USDT disappeared in 1 hour"
Such stories where Binance scams with DOWN and UP tokens are huge in social networks, forums, Reddit-e. The principle of fraud is quite simple, the price of the main asset is falling, as a consequence, the price of the asset DOWN should rise, but it turns out the opposite, the price of token DOWN also flies down. The reason is the same - the fraud of Binance betting and casino, but if you take into account that the trading volumes on Binance are almost inflated hundreds and thousands of times (the liquidity is fictitious) - it is obvious that the casino players have to give their money back, no matter whether the asset is growing or not.
On May 27, 2021, traders again and again, lost money on the Binance exchange's margin tokens, even though they expected to make a profit. Binance confirmed that some customers suffered losses on DOWN tokens, which are designed to make money on market declines, while the market was indeed falling.
The exchange attributes what happened to the actions of the algorithm, which behaved in full accordance with the model laid down during the market crash. It also notes that the risks of margin tokens were disclosed in advance. The largest number of complaints relate to the events of May 19, when the price of bitcoin fell from $43,500 to $30,000. A number of users saw this as an opportunity to make money and purchased BTCDOWN and ETHDOWN inverse margin tokens. However, instead of rising during a market decline, such tokens also went down in some cases, and their supply increased sharply.
According to Binance, along with the rise in the price of such tokens, their large volumes were redeemed by traders in a short time. This, in turn, led to a sharp decline in the amount of capital allocated to back them. As a result, the size of the leverage exceeded the permissible values, and the algorithm took measures to restore it. Its actions resulted in a sudden drop in the price of tokens.
Here’s how Binance casino explains it:
Suppose there is a DOWN token with $100 million in capital and a $180 million futures position. The real leverage in that case is 1.8x.
When the price of the perpetual DOWNUSDT futures drops 5%, the value of the futures position increases by $9 million to $189 million. The DOWN token brought in $9 million and the available capital is now $109 million. The real leverage is 1.73x.
Now let's assume that the perpetual futures DOWNUSDT is down another 120%. The futures position would increase by $226.8 million to $415.8 million and the available capital would increase by $226.8 million to $335.8 million. The real leverage has decreased to 1.238x.
Since the real leverage is now outside the target range of 1.25 - 4x, the rebalancing is triggered and the algorithm adds a futures position to increase the real leverage so that it is within the target range. For example, if the algorithm decides to rebalance from 1.238x to 1.7x, it will add a $155.06 million futures position, increasing the total futures position to $570.86 million, which is 1.7x relative to equity.
As the algorithm gains futures positions, the price of the perpetual DOWNUSDT futures decreases because of the large number of short positions. Now let's assume that users redeemed a large volume of DOWN tokens, reducing available capital from $335.8 million to $130 million. This means that leverage is now 4.39x.
Since the leverage is outside the target range, the algorithm must close short positions at an unfavorable rate by buying long positions in a volatile and illiquid market, resulting in a reduction in net worth. It may seem counterintuitive, but shorting futures positions can lead to further increases in leverage in extreme market conditions.
This is why, despite our best efforts, there is no way to reduce leverage until the subscription and redemption tokens are stopped.
When the price of the perpetual DOWNUSDT futures drops 5%, the value of the futures position increases by $9 million to $189 million. The DOWN token brought in $9 million and the available capital is now $109 million. The real leverage is 1.73x.
Now let's assume that the perpetual futures DOWNUSDT is down another 120%. The futures position would increase by $226.8 million to $415.8 million and the available capital would increase by $226.8 million to $335.8 million. The real leverage has decreased to 1.238x.
Since the real leverage is now outside the target range of 1.25 - 4x, the rebalancing is triggered and the algorithm adds a futures position to increase the real leverage so that it is within the target range. For example, if the algorithm decides to rebalance from 1.238x to 1.7x, it will add a $155.06 million futures position, increasing the total futures position to $570.86 million, which is 1.7x relative to equity.
As the algorithm gains futures positions, the price of the perpetual DOWNUSDT futures decreases because of the large number of short positions. Now let's assume that users redeemed a large volume of DOWN tokens, reducing available capital from $335.8 million to $130 million. This means that leverage is now 4.39x.
Since the leverage is outside the target range, the algorithm must close short positions at an unfavorable rate by buying long positions in a volatile and illiquid market, resulting in a reduction in net worth. It may seem counterintuitive, but shorting futures positions can lead to further increases in leverage in extreme market conditions.
This is why, despite our best efforts, there is no way to reduce leverage until the subscription and redemption tokens are stopped.
Binance states on its website that it does not publicly disclose leverage targets or rebalancing terms, as traders could take advantage of this information to gain an unfair advantage. Unfixed leverage sizes distinguish Binance's margin tokens from similar offerings on other exchanges. Thus, when trading them, users need to consider not only the direction of the market, but also other, non-obvious factors.
The exchange also denied allegations of unwarranted issuance of new tokens.
"We only issue tokens based on user demand. We don't control supply. Everything is demand-driven," the company said.
In other words, as it were - Binance casinos are not to blame, it's the fault of users who don't understand anything. And they should understand one simple truth - the casino always wins, by any means, even by direct manipulation and fraud.
13.06.21
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