Markets Rally After Binance Proposes ‘Industry Recovery Fund’

DeFi Derivatives Surge as Traders Flee Exchanges

Crypto markets rallied early Monday after Binance CEO Changpeng Zhao (CZ) proposed to create an “industry recovery fund” that would invest in companies struggling to stay afloat in the wake of FTX’s collapse.

Major cryptocurrencies spiked after Zhao’s announcement just after 1:30 a.m. New York time, despite few details about the proposed fund.

Ether, Bitcoin and Binance’s own BNB token rallied around 4%. Solana, whose ecosystem has suffered more than that of any other major smart contract blockchain over the past week, jumped 13%.

“Given the events that transpired in the last week or so, there will be quite a number of good projects — they basically really didn’t do much wrong, they were building their products, they may have their funds on an exchange that went down,” Zhao said on a live Twitter broadcast Monday morning. 

“The best way to help them is [by] giving them money or investments. We actually think that this is a pretty good time to do it because most of those projects’ valuations are much more reasonable than they were a year ago.”

Zhao also defended Binance as a safe place to park one’s crypto assets, insisting it did not participate in the risky and possibly illegal behavior that brought down FTX.

“We don’t have loans, we don’t have debt, we don’t owe anybody money,” Zhao said. “We’re a very clean, very simple business.”

Exchange Outflows

Nevertheless, users have fled Binance and other centralized exchanges over the past week, according to a report from Glassnode.

Bitcoin balances across all exchanges have dropped by 72,000 BTC since Nov. 6.

Larger outflows were seen in only three periods in the past – Apr-2020, Nov-2020, and June to July 2022.

More than a million Ether has been withdrawn from exchanges since Nov. 6.

“This makes for the largest 30-day balance decline since September 2020 during the peak of ‘DeFi Summer’, where demand for ETH was sky high for use as collateral in smart contracts,” notes Glassnode.

Meanwhile, exchanges have hemorrhaged stablecoins — tokens pegged to the value of fiat currencies, usually dollars.

In the past week, $1.2B in stablecoins have been withdrawn from Binance, per Nansen data, while OKX, KuCoin, Kraken, Bitfinex and Huobi have each seen their stablecoin balances drop by more than $100M. Stablecoin balances at leading decentralized exchanges Uniswap and Curve have also dropped by hundreds of millions in the past week.

DeFi Derivatives

Traders appear to be taking their business to DeFi protocols, however.

Trading volume and fees collected by decentralized derivatives exchanges have spiked since Nov. 7. Trading volume on GMX, a derivatives exchange on the Arbitrum and Avalanche blockchains, more than doubled to more than $1B between Nov. 6 and Nov. 7.

Trading volume on dYdX, the largest DeFi derivatives exchange by volume, exceeded $3.5B on Nov. 8, its highest level since May, according to data from Token Terminal.

Meanwhile, dYdX’s token is up 60% this month, according to data from The Defiant Terminal. 

DYDX Price, Source: The Defiant Terminal

“Regulatory pressures + the FTX situation is paving way for a massive increase of adoption for DeFi perp exchanges,” Pastry, a pseudonymous Twitter account that tracks DeFi metrics, wrote.

“Currently, DEXs only capture 1.57% of futures volume compared to CEXs … expect this number to change rapidly.”