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Two of the most popular crypto exchanges have reduced the leverage limits on their platforms. FTX was the first to announce the reduction of maximum leverage on Sunday followed later by Binance’s announcement of a similar move.
FTX CEO Sam Bankman-Fried announced via Twitter that he is reducing the amount margin-traders can wager from 100 times leverage to 20 times, according to Coindesk. He explained that high leverage is only a small part of the exchange’s business while disputing claims that high leverage is one of the causes of the crypto market’s high volatility.
“And so, after lots of back and forth, we're going to be the ones to take the first step here: a step in the direction the industry is headed and has been headed for a while,” Bankman-Fried tweeted. “Today, we're removing high leverage from FTX. The greatest allowable will be 20x.”
“An effective margin system is integral to an efficient economic system,” he added. “There are limits to everything, though.”
He went on to explain that liquidations on the platform are just less than one percent. “Any margin system needs to have liquidations as a backup, but the goal is to do so rarely,” he added. “At FTX, way less than a percent of volume comes from margin calls. This contrasts with a few platforms which are sometimes > 5%, and some which removed data because it looked bad.”
Meanwhile, Binance’s announcement came around 14 hours after FX’s. CEO Changpeng Zhao wrote on Twitter that his firm has also started to limit leverage to 20 times for new users, which will soon be applied to existing users of the platform.
“Binance futures started limiting new users to max 20x leverage last Monday, Jul 19th, 7 days ago. (We didn't want to make this a thingy),” Changpeng Zhao tweeted on Monday. The platform’s previous leverage limit was 100 times.
However, the same restriction would be gradually implemented to its existing clientele. “In the interest of Consumer Protection, we will apply this to existing users progressively over the next few weeks,” the CEO added.
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