Ever since the Terra, Celsius, and 3AC episodes unfolded back to back, ‘bailouts’ have been a topic of discussion among stalwarts from the space. While the likes of Nexo, FTX, and its exec Sam Bankman-Fried have been pro bailouts, regulators like Hester Peirce have been on the anti-side of the page.
Now, in the latest development, one of the world’s largest exchanges has joined the latter group.
Binance says no to bailouts
In a recently released blog post, Binance acknowledged that it’s one of the most prominent industry players and has a “healthy” cash reserve. Then, similar to what SBF asserted a couple of days back, even Binance said that it has a “responsibility to help” industry players survive and hopefully thrive. It added,
“This is the case even if there are no direct benefits to us or we experience negative ROIs.”
In the first instance, it might seem that the company’s stance is more inclined towards the pro side. However, Binance quickly drew a line and differentiated between the different types of bailouts. Per the exchange, poorly designed, managed, and operated makes projects “bad,” and they shouldn’t be sympathized with. Further elaborating, the post noted,
“These should not be saved… Bailouts here don’t make sense. Don’t perpetuate bad companies. Let them fail. Let other better projects take their place, and they will.
Without maintaining an extremist perspective, Binance went on to chalk out that there parallelly exist projects that make minor and fixable mistakes. For instance, if a company is aggressive with spending or has insufficient reserves, it can be bailed out. However, having solid fundamentals would be the prerequisite in such situations.
“These can be bailed out and subsequently ensure changes are made to fix the problems that led them to this situation in the first place.“
Well, per the exchange, then comes the third category that includes projects that will survive, but barely. That may be due to weak fundamentals like liquidity crunches, budget issues, etc. According to Binance, such companies also have the chance to survive by exploring various options.
“They could either wait it out, get a cash injection, or explore M&A possibilities.”
In the past, there have been instances where Binance has bailed out various entities. In fact, with user protection remaining its priority, it hasn’t shied away from lending investors helping hands as well during times of distress.
However, per the exchange, such explicit labels do not exist in real life, and some subjectiveness is attached. Towards the end, Binance affirmed the need for a detailed examination to decide whether or not companies/projects are bail-worthy.