CZ, the CEO of Binance, has just issued a warning about the risks of price manipulation and liquidity drain when listing tokens on centralized exchanges (CEX). He believes that the current listing process is enabling certain individuals or organizations to take advantage, significantly impacting the market and investors.
The Listing Process and the Phenomenon of Price Manipulation
According to #CZ , Binance announces the listing of tokens 4 hours before they officially trade. During this time, token prices often surge on decentralized exchanges (DEX), followed by heavy sell-offs on CEX once listed. This causes many investors to buy at high prices and incur losses as soon as the token trades on CEX.
He explains that while the notification time is necessary for investors to prepare, that 4-hour period inadvertently creates opportunities for large players to manipulate prices on DEX. They buy aggressively to push prices up, then sell off on CEX to reap huge profits.
Why Does Price Manipulation Occur?
This phenomenon mainly occurs due to the liquidity discrepancy between DEX and CEX. On #DEX , liquidity is often thinner, making it more susceptible to large buy and sell orders. Meanwhile, on CEX, trading volumes are larger, and prices can easily adjust when there is a sudden spike in supply.
Additionally, the FOMO (Fear Of Missing Out) mentality of investors when they see prices rising on DEX further drives them to buy in hopes of making profits, inadvertently becoming victims of price manipulation.
CZ's Solution: Listing Like DEX
To prevent this situation, CZ suggests that #CEX should adopt a listing method similar to DEX, meaning immediate listing without prior notice. This will help minimize the opportunity for price manipulation while ensuring fairness and transparency for all investors.
Risks and Warnings for Investors
Listing tokens is always an event that attracts significant attention from the market, but it comes with the risk of strong price volatility and market manipulation. Investors need to be alert and cautious, avoiding getting caught up in the FOMO and FUD (Fear, Uncertainty, and Doubt).
Risk Warning
The cryptocurrency market is always highly volatile and carries many risks. Investing in newly listed tokens can yield high profits but also comes with the risk of significant losses. Investors should conduct thorough research and only use money they can afford to lose.
CZ's warning once again reminds investors of the complexities of the crypto market. Staying updated and choosing appropriate investment strategies will help investors protect their assets and avoid unwanted risks.
