Update - 15 July 2021. This article should be considered superseded by my YouTube video series where I continue the investigation:
Update - 28 June 2021. Upon further forensic analysis, the views represented below have been invalidated. What I have found is much, much, worse than a matching engine issue. I will keep you posted.
Today is June 19, 2021. Exactly 1 month past the infamous May 19 crash which saw the price of Bitcoin drop over 30% in a day.
Many leading crypto exchanges went down including Binance, Coinbase among others. BLVT, otherwise known as Binance LeVeraged Tokens went into a volatile frenzy, with some tokens showing a never-seen-before type of trading chart like the following.
Up 2238% and down 96% within seconds repeatedly at the most volatile moment. Binance knew they were not backing out of this therefore they decided to put the BLVTs into a maintenance mode.
What many people do not realise is, the BLVTs actually trade the Futures contracts themselves. What does this entail? Binance is happy to admit 'some kind of fault' with the most upper-layer of their Derivatives platform - the BLVT - which is essentially a derivative of a derivative, bit like the 'synthetic CDOs' if you have seen the movie The Big Short.
I'll cover BLVTs in a bit more detail in another post or a video. Let's peel the onion skin a little more. Underneath the directional tokens, lays the Binance perpetual futures contracts - which had issues of its own.
Many futures traders around the world, including myself were not able to place stop losses, take profits or simply close out of our positions for hours, not only missing out on huge opportunities but taking losses and even being liquidated.
Did BLVTs cause issues to the futures contracts? Or is it the other way around? Let's peel another layer, in fact, many layers and get to the juicy part - the matching engine.
A matching engine is the core of any trading platform. It is what CPU is to a computer, what a heart is to us humans and animals. Could the problem of May 19 have started from the matching engine?
I say with high confidence and high probability:
Yes, the Binance Futures Matching Engine is the root cause of the May 19 meltdown on Binance.
There is just so much to expose about Binance but since today is a special day, let's start with the juicy stuff. I was able to, with a little effort, obtain a copy of the 1 minute OHLCV (open, high, low, close, volume) trading data through TradingView. For 2 different datasets. I'll explain.
What's happened here is quite interesting. Binance tried to overwrite the old data with ~40 minutes missing - and it did. Except it didn't update across all TradingView servers. There was at least 1 server that still had the old data and I was able to get to it by doing something similar to the following:
Let's get to business. Below I will show the 2 datasets side by side and will explain how I was able to find out where the May 19 issue started for Binance along with reasons why I believe the Binance matching engine is not as good as they claim it to be. Binance is essentially not prepared for the next volatility and your funds are not safu.
What I looked at closely is the volume difference between the 2 charts. It is apparent that continued volumes of 7,000 - 8,000 BTC per minute causes a the volume to drop off.
What does it mean? This volume difference at 2021-05-10 11:33 UTC marks the beginning of the severe outage. It is consistent with the user reports around the world.
As the trading volume increases again towards 7,000 - 8,000 BTC per minute volume difference start appearing again, this time, over a longer period.
This time, it causes the chart to stop reporting for roughly 40 minutes, indicated by the gap up shown above in the 2nd trading chart. The ~40 minutes mark the most severe part of the May 19 outage when aligned with the reported user experience around the world.
Why is there a difference in volume? There's 2 ways we can explain this:
1. Binance manually rigged the data to hide the fact of a severe outage.
2. Binance has a 'high priority' API which is only given to Institutional and certain VIP-tier clients and those could trade throughout the Retail carnage.
The third way would be a possibility if Binance releases a statement or if a reader knows something.
I have much, much more to expose. This is just the tip of the iceberg.
I have done the right thing and have raised my concerns to Binance, pointing out to my findings. I even shared some preliminary data with them. Maybe they didn't think much of it.
My findings here leads me to strongly believe the May 19 meltdown is a result of the Binance Futures matching engine not being prepared to deal with the volatility. CZ, the CEO of Binance has previously admitted an issue with their matching engine on two occasions but the issue was contained within the Spot market.
It seems that the same issue has now found its way onto the Derivatives / Futures matching engine and Binance seems to want to do whatever it can to stop the truth being revealed, as I assume, the Derivatives platform, led by AG (Aaron Gong) would be bringing in huge profits for Binance.
Binance essentially pointed their finger at BLVT as the scapegoat, and the Retail traders for not having an understanding of how these tokens work - outlined in the CoinDesk article written by Muyao Shen.
What's funny in the example is that the Binance representative makes an example of a USD denominated futures contract (it could be something like BTCUSDT) dropping by 120%. Really? Isn't that implying the price dropping below zero, into negative territory?
I know oil futures did this once, but that was a black swan. I'm happy for CZ, AG to call me and explain what this means - or any reader. Please reach out to me on Twitter.
If you would like more of a surface level view of what happened on May 19 for Binance traders, I cannot recommend highly enough TechLead's video.
I'll be doing a series of YouTube videos called Exposing Binance. I ultimately would like to make a Netflix documentary called Exposing Binance; I already have enough evidence, research and findings of substance and high merit - less than 5% of it has been revealed here today here to remember the May 19 incident a month ago.
Do reach out to me if you'd like to be involved or would like to help.
Some other topics I'll cover in the future are:
1. Binance hiding true liquidation data since April 2021 (and Bybt data is inaccurate)
2. What actually happened with BLVTs
3. How long was the actual outage window
4. Strange timing of order book data disappearing
5. A deep-dive into the market depth data of May 19
6. Was there a 'hidden' working API throughout the outage?
7. Binance's 'strategic' corporate structure in various jurisdictions
If you are interested in learning more about what I have covered on this article, please check out the supplementary research and analysis work - Binance May 19, 2021 Peculiarities.
Please understand I have deliberately not disclosed all findings due to various strategic and personal reasons.