Liquidate the Liquidators?

Crypto.com’s top executive, Kris Marszalek, has called for regulatory scrutiny of cryptocurrency exchanges that experienced the highest liquidation volumes during the significant crypto market downturn last Saturday. Marszalek, in a recent message on social media platform X, suggested that regulatory bodies should “undertake a comprehensive examination of the fairness of operations” among the ten exchanges reporting the most liquidations in the past day.

Marszalek included an image listing the exchanges he believes warrant investigation. Hyperliquid led the list with liquidations totaling $19.35 billion, followed by Bybit at $10.31 billion, and Binance, which saw $4.5 billion in liquidations.

The top five exchanges on the list collectively accounted for over $37 billion in liquidations within the 24-hour period. Other exchanges mentioned for investigation included OKX, HTX, Gate.io, CoinEx, Bitfinex, and Bitmex.

Areas for Regulatory Examination

Marszalek specified several key areas he believes regulators should focus on when examining these exchanges. He suggested authorities investigate whether any of the exchanges experienced operational failures that prevented investors from executing trades.

Further, Marszalek raised concerns about the accuracy of trade pricing and whether it was “consistent with industry benchmarks.” He emphasized the need for a review of the exchanges’ trade monitoring systems and their compliance with anti-money laundering (AML) protocols.

Another crucial aspect of the proposed investigation, according to Marszalek, should be to determine whether internal trading divisions within these exchanges are adequately separated to avoid conflicts of interest. He emphasized:

“With $20B in liquidations, many users suffered losses. Regulatory agencies have a responsibility to protect consumers and maintain market integrity.”

Investor Complaints of Unfair Exchange Practices

Following Saturday’s market volatility, numerous cryptocurrency investors turned to X to voice concerns about trading difficulties.

Notably, users of Binance reported challenges in executing trades or accessing platform functionalities during the market crash. One crypto investor, known as ‘Cowboy’ on X, accused Binance of being the “biggest scammers in crypto.”

Cowboy alleged that Binance restricted user access to their accounts during the crash, preventing them from accessing their funds. He further claimed that limit order and stop-loss features were disabled, allowing Binance to “maximize profits during the largest liquidation event in history.” He stated:

“By preventing users from managing their positions or capitalizing on market lows, Binance effectively turned a market downturn into a profit-generating opportunity for themselves.”

Cowboy also suggested that Richard Teng, the CEO of Binance, could face legal repercussions for the exchange’s alleged misconduct.

Another user, using the pseudonym ‘ElonTrades’ on X, pointed out that malicious actors exploited a vulnerability in Binance’s pricing mechanism, leading to the artificial destabilization of USDe and resulting in hundreds of millions of dollars in forced liquidations.

ElonTrades claimed that Binance relied on its own order books, rather than an external oracle, to value USDe, BNSOL, and WBETH. A coordinated dumping of approximately $60 million worth of USDe on Binance allegedly caused the stablecoin to depeg, triggering the liquidation of positions held by users who had used the token as collateral.

ElonTrades explained:

“What appeared to be market chaos was, in fact, a deliberate exploitation of Binance’s internal pricing protocols, amplified by broader market pressures and excessive leverage.”

Binance acknowledged experiencing “platform-related issues” that impacted users and announced plans to compensate affected individuals. Teng emphasized Binance’s commitment to “learning from these events” and striving for continuous improvement.

Binance co-founder Yi He commented:

“Binance’s success stems from our commitment to transparency and accountability. When we fall short, we take responsibility – there are no excuses or justifications.”

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