The CEO of Binance exchange recently revealed that the company is against segregating order book liquidity. Changpeng Zhao revealed that the trading company had received several appeals from clients, urging them to segregate order book liquidity by geographical locations. While the plea may sound logical, there are several reasons why that would be a terrible idea.
CZ Defends Large Liquidity on the Binance Exchange
Changpeng Zhao stated that the Binance exchange currently serves 180 nations around the globe. Stating his stance against segregating liquidity, the crypto advocate stated that larger liquidity protects traders from market manipulations.
Should the order books be segregated across the 180 different nations, the market becomes diluted by 180X. CZ noted that the big traders could use this to their advantage since manipulations would be 180x easier.
The BNB founder also stated that some traders misunderstand the operating techniques within exchanges. Users do not choose a counterparty on an exchange; they just trade the order book, said CZ. The order book plays the same role as a broker in the financial markets.
Although the liquidity segregation postulated by some users will open more arbitrage opportunities, these opportunities will come at the expense of some other users. When traders profit from a large spread, the difference is paid by other buyers and sellers.
Thus, the expected advantages of liquidity segregation will turn out to be a double edges sword. On the other hand, when liquidity is much, the spread on the exchange will remain low. This allows all traders to benefit from low fees.
Changpeng Zhao concluded his defense against liquidity segregation by emphasizing the positive financial impact and consumer protection large liquidity exchanges provide. Binance is the largest cryptocurrency exchange by trading volume, and the exchange has strongly defended that position for several years.