Binance promoted terra as a ‘safe’ investment before $40 billion crash

Binance promoted terraUSD as a “safe” investment just weeks before the stablecoin and its counterpart luna crashed in a $40 billion annihilation that rocked the crypto industry.

The world’s largest crypto exchange announced an investment program on April 6 in which customers lend their terra to earn a return of almost 20% as a “safe and happy” opportunity, according to a message sent by Binance on its website. official channel on the Telegram messaging app.

Terra and Luna, a set of related digital tokens, were popular with crypto traders seeking high returns through lending programs known as “staking,” but lost almost all of their value in the process. beginning of the month in one of the biggest crashes in the crypto industry. .

Binance is one of the most influential players in the crypto industry, processing approximately $1 billion in transactions per month and offering a wide range of financial products through its website. Its promotion of terra as a safe investment highlights the pivotal role that crypto exchanges play in choosing digital tokens that are easily accessible to traditional traders.

Crypto investment advertising has become a concern for regulators in several countries, who are concerned about promotions that downplay the risk of cryptocurrencies or encourage retail investors to invest their money in complex digital asset products that have little legal protections.

The UK government plans to tighten standards for crypto advertisements. Earlier this year, Singapore banned nearly all influencer advertising on public transport and social media for crypto, while Spain said it would require influencers to notify regulators of posts in advance. cryptographic.

Binance’s Telegram message, which has been viewed 117,000 times on an app widely used by crypto enthusiasts, provided no disclosure, although a website to which the ad was linked noted that “trade in cryptocurrency is subject to high market risk”. Binance had also promoted in 2021 a luna staking system as a “safe” investment.

Binance told the Financial Times that it is “now reviewing how campaigns for projects, such as Luna, are evaluated before they are announced.”

Binance sent a message to its Telegram users on April 6 promoting the “safe and happy” opportunity to earn high returns by lending terraUSD, often known by its symbol “UST”. The coin’s value plummeted weeks later. © Binance/Telegram

Terra is a so-called stablecoin that attempts to mirror the value of $1 through a relationship with the luna cryptocurrency that is defined by algorithms. If terra falls below $1, traders are incentivized to buy the stablecoin and then exchange it for $1 worth of newly minted luna tokens. They pocket the price difference in profit. However, the relationship broke down earlier this month, causing the values ​​of both coins to plummet to near zero.

Luna’s fall hit many retail traders with heavy losses and ricocheted through the crypto market. Bitcoin, the world’s most valuable crypto token, fell to its lowest level since late 2020, with the Luna incident adding to broader pressures in the digital asset market.

Binance CEO Changpeng Zhao acknowledged in a blog post on Friday that “it is now apparent that everything was built on a superficial and self-perpetuating concept.”

He added, “Although terra had an ecosystem with certain use cases, the speed of ecosystem growth did not match the speed of incentives used to attract new users.”

Line chart of $per coin showing the collapse of Terra's counterpart moon

Zhao said at the Financial Times Digital Asset Summit in April that while the exchange performs “due diligence” on coins on its platforms, the most important metric for its decision-making is a token’s popularity. “If something is used by a large number of users . . . it has value,” he commented.

The group, which has no fixed head office, was censured last year by Britain’s financial regulator, who warned that the group’s ‘complex and high-risk financial products’ posed ‘a significant risk to consumers “.

However, it has recently made progress securing regulatory approvals elsewhere. Binance plans to make France “at least” a regional headquarters after regulators earlier this month gave permission to its local subsidiary to act as a registered digital asset service provider – the first EU countries to do so. Binance has also received similar approvals in Dubai and Bahrain.

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