Changpeng Zhao, CEO of Binance, has blamed a crash in the price of Bitcoin futures on an ‘attacker’. He claims that this was done by a customer who started their own futures exchange a few months ago, but quickly clarified that he had spoken to said client and that it was caused by a mistake in their execution, September 16, 2019.
Orderbook Issues and Supposed Attack
Bitcoin was trading flat in the lower $10,300 range when it suddenly flash crashed to $10,024 on the Binance futures platform. Price rebounded and everything was fine, but Zhao deflected blame for this incident on the entity that misexecuted their trade.
A market maker from a smaller futures exchange tried to attack @binance futures platform. NO ONE was liquidated, as we use the index price (not futures prices) for liquidations (our innovation). Only the attacker lost a bunch of money, and that was that. pic.twitter.com/ztMZEtYKc6
— CZ 🔶 Binance (@cz_binance) September 16, 2019
In reality, it is likely that Binance futures has a relatively small orderbook, which caused this massive deviation. This theory is supplemented by the fact that Binance has refused to reveal their orderbook and keeps it hidden from traders.
For a million-dollar order to create a 3 percent slippage would require the orderbook to be extremely thin, and many on Twitter believe this is the real reason for the attack.
Zhao has proven himself to be a man of integrity in the aftermath of the Binance hack. So while there is no reason to doubt his words, he seems to have conveniently forgotten to address the underlying issue that allowed an order to create such high slippage.
The Risk of Centralized Exchanges
Taking all of this into account, the risks associated with centralized trading seem to be ballooning at this point.
Stock and commodity trading is done on centralized exchanges, but this is done with government support and billions of dollars poured into state of the art architecture.
Decentralized exchanges remove the need for both of these things by utilizing robust game theory to eliminate fraudulent activity.
Unfortunately, no decentralized exchange has gotten a significant amount of traction. Decentralized liquidity pools like Uniswap have been getting a lot of love on social media and have nearly $18 million of liquidity locked on the platform.
DeFi on Ethereum and other protocols are helping us bridge the gap between centralized exchange and trustless transfer, but this likely to take a lot more time to gain adoption as they are still in an inception phase with low efficiency.