Binance is launching contracts crazily, just like the "Death Note", whoever is written in it will die suddenly?

Author: Professor Suo said

"What is the purpose of the contract?"

Recently or this year, Binance has launched a large number of contracts. I haven’t counted the number of contracts, but it is likely that it has surpassed many of the former leading “derivatives exchanges”.

Nowadays, many exchanges mainly list "contracts" and rarely list spot products. The reasons are basically the same. If the market value is too high and the spot market is listed, it is easy for users to take over. There is no need to worry about listing contracts because users can go short or long on contracts.

So actually, including but not limited to Binance, OKX, and Bybit, the number of contracts they list is much more than that of spot trading, and the reason is right here.

Moreover, the main point is that for spot trading, you may really need 'reserve spots' to meet user withdrawal demands, while 'contracts' do not require this at all, after all, it's not 'physical delivery'.

From a very observational perspective, exchanges are places that provide 'trading'. So as long as they provide trading pairs, they can earn transaction fees. Therefore, whichever fee can make a profit, they will use that one; whichever can increase 'fee revenue', they will go for it.

Therefore, isn’t 'leverage' also a source of income from 'transaction fees'?

So actually from the perspective of 'exchanges', this is a normal operation, after all, they are after 'transaction fees'. Unless you insist that 'exchanges' are eating customer losses, then there will be more discussions. It can entirely rely on everyone's imagination; I won't elaborate further, as it's unnecessary.

‘Why Spot Has a Greater Impact’

Here, it is actually discussing the question of why spot trading has a greater impact on exchanges or prices.

When trading spot, the 'reserve spot' obtained from trading is used for users to withdraw, which causes a lot of circulation to be locked in exchanges. Many users may not necessarily trade them, which could lead to the actual circulating market cap being much less than the real market cap.

If an exchange lists spot trading, it means it must have spot assets, as it must ensure that there are spot assets at the exchange address before opening trading, and these addresses are all public.

Therefore, the positive effect on price is far greater than that of 'contracts', and the main point is that going to spot will make 'liquidity' not as good. Here, 'liquidity' refers to many 'spot tokens' being locked in 'trading searches'.

Especially when many spot tokens are monitored on-chain, and it is found that a certain exchange has very low token balances, they will force a short squeeze to withdraw, making the exchange buy coins themselves. This kind of thing happened on $REEF, where at that time, @gate_io did not have enough coins, leading to @dotyyds1234 forcing the short squeeze for a while 😂.

‘The Liquidity Battle’

In reality, the main relationship between contracts and spot lies in the debate over 'liquidity'.

After going to contracts, liquidity is very good, and since there is no need to buy 'spot', the actual impact on price is 'not significant'. It mainly increases through 'arbitrage' trends later on, which leads many people to use 'contracts to arbitrage', resulting in very good 'liquidity'.

Moreover, many coins show that the trading volume of spot is far lower than that of contracts.

In fact, because of contracts, you can make money whether prices go up or down, which makes liquidity even better.

Similarly, with $10,000 in the contract market, it could potentially turn into $200,000 in capital flow. For exchanges, this is just skimming the profits; whoever can generate more flow is favored.

However, the liquidity of spot trading is not very good right now, especially given the recent market conditions. Altcoins are on a downward trend, and for many exchanges, spot trading has been a big bullish candle followed by a continuous decline. Very few can continue to rise after being listed on an exchange, even wealthy and influential VC coins can't do it. Can purely conceptual meme coins achieve this?

So if you provide an option where you can also make money when prices drop, then it must be through contracts.

So actually, from the perspective of enabling 'users to make money', there is no problem with going to 'contracts'.

‘The Final Chapter’

For those who hold a lot of positions, if they go to Binance's contracts, it can provide ample opportunities to exit. However, with spot trading, it might not be possible to exit completely.

Since the depth of spot trading is not very strong and the trading volume is not large, if you rely purely on single-chain trading, it can be quite difficult. However, if you directly open a contract, there is a good chance you can enter at once.

It reminds me of $ARKM, where a group friend held 10% of the total circulation and could not sell out by hitting the spot, then opened contracts and gradually sold off, completing their exit.

So in fact, there is no conflict between spot and contracts; it all depends on how you use them or how you understand the concept of liquidity.

For most assets, the better the liquidity, the faster they drop, and the worse the liquidity, the better they rise.

For example, assets like NFTs, BRC20, etc.

Think about it, with so many transaction fees, exchanges must want to take a share, so if spot isn't listed, contracts must be listed.

Ultimately, it's all business. They cannot control the price. If they short, everyone can directly buy on-chain to trigger the short position 😂.

Good liquidity will be controlled by 'market makers'.