Monday’s roller coaster ride in cryptocurrency prices came with Binance’s new restrictions on Ethereum and ERC-20 tokens.
Overloading the Ethereum network fingered as the culprit for the temporary halt
Through the official Binance Twitter account, one of the world’s largest cryptocurrency exchanges by volume, announced that it has “temporarily suspended US dollar withdrawalsETH and ethereum-based tokens ”due to network congestion while also underlining that the user funds are SAFU (Secure Asset Fund for Users).
Rest assured funds are available #SAFU and we apologize for any inconvenience.
Updates will follow.
– Binance (@binance) February 22, 2021
Although Binance has since reversed its earlier decision and restored service in an announcement 37 minutes after its first tweet, traders were quick to deal with the criticism. That latest move came amid a spike in Ethereum’s gas costs and a backlog that quickly escalated over 151,000 outstanding transactions. Binance CEO Changpeng Zhao confirmed the loading of the system and found that the gas shot past “+1200” during the last overload.
– CZ 🔶 Binance (@cz_binance) February 22, 2021
Binance has already become a huge target in the crypto community after being held responsible for persistently high gas costs. Some claim the congestion is a concerted effort by Binance to bring more users to its Binance Smart Chain. However, given the huge volume of transactions and the gas fees that Binance pays to the Ethereum network on a weekly basis, this claim is difficult to confirm
Binance failure underscores the need to scale
But along with other recent events like that AWS issues that occurred last weekThis recent service outage begs the question of whether centralized exchanges will be able to handle the latest stream of investor flows. In addition, the launch of Ethereum 2.0 uncovered similar scaling issues and determined whether already congested blockchains can keep up with the ongoing adoption.
For some market participants, the answer lies in liquidity aggregators. While service interruptions have shaped the cryptocurrency landscape for years and become commonplace in times of severe volatility, aggregators who bundle liquidity from centralized (CEX) and decentralized exchanges (DEX) have cobbled together a patchwork solution. Nevertheless, questions about the security of their custody and blockchain interoperability remain open.
Offers like Orion Protocol Many of these challenges have been addressed by aggregating liquidity in a hybrid way from CEXs, DEXs and now automated market makers (AMMs). Aggregators seek to decentralize the pressure and reverse the burden of sharing at peak times while avoiding the custody issue.
For traders on centralized exchanges, however, load balancing issues and volatility remain a drag on the ecosystem, as the recent Binance outage underscores.
Do you think withdrawal locks will become the norm or a solution to network congestion will be found? Let us know in the comments below.
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