Binance, the world’s largest crypto exchange by trading volume, has been approached by many countries for creating a “separate order book” (liquidity), but according to Changpeng Zhao, the exchange’s founder and CEO, it’s a “bad idea.” for many reasons.”
Zhao explained in a Twitter thread on Sunday that ample liquidity is one of the “best consumer protection mechanisms” because it protects investors from “market manipulation and volatility and reduces liquidations.” However, he believes that creating a separate order book for each country will lead to increased volatility in the crypto market, which is inherently volatile.
“Imagine if we split the liquidity between 180 countries.” he said. “It will make it 180x easier for large traders to swing the markets and significantly increase volatility.”
Swing traders are those who invest money to catch a specific trend and their positions only last for a shorter period of time. Therefore, they take profits within a few weeks to a few months. Therefore, swing traders sitting on a huge pile of cash could easily manipulate a separate market.
On the other hand, arbitrage traders are the ones who take advantage of tiny price swings and as a result play an important role in leveling prices. Zhao explained that while such traders could exist to reduce volatility, they are not as efficient as an order book and also “make money (which is paid for by consumers) in between.”
“Another misconception people sometimes have: on an exchange, users don’t choose a counterparty. You only trade on the order book. You can think of the order book as a broker,” explained the head of Binance.
Zhao pointed out that big liquidity offers “better prices for users” while offering “tighter spreads” and “lower slippage,” which he says is an “important form of consumer protection.”
Finally, he also revealed that Binance has “by far the most liquidity” compared to other cryptocurrency exchanges worldwide.
https://www.ibtimes.com.au/binance-ceo-why-he-believes-separate-liquidity-countries-bad-idea-1836311?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Binance CEO on why he thinks separate liquidity for countries is a ‘bad idea’