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
Via Binance’s official Twitter account, one of the world’s largest cryptocurrency exchanges by volume announced that it has “temporarily suspended” withdrawals from ETH and Ethereum-based tokens as the network was SAFU (Secure Asset Fund for users).
#Binance has temporarily suspended the withdrawal of tokens worth $ ETH and Ethereum due to the high network congestion.
Please rest assured that the funds are #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. This latest move came amid a spike in Ethereum’s gas costs and a backlog that quickly surged past 151,000 outstanding transactions. Changpeng Zhao, CEO of Binance, confirmed the stress on the system, noting that the gas shot past “+1200” during the last overload.
The ETH is now overloaded with more than 1200 gases. @Binance has suspended withdrawals.
There was a conspiracy theory that Binance is intentionally making ETH gas fees high. 😂 Let’s see how it comes down a bit. pic.twitter.com/tNK9b3b9OK
– 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
Coupled with other recent events such as the AWS issues that arose last week, this recent service outage begs the question of whether centralized exchanges are 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.
Offerings like the Orion Protocol have addressed many of these challenges 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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