In a significant move to ensure fairness and transparency, Binance, the world’s largest cryptocurrency exchange, is set to close a loophole in its Link Plus program that has been exploited by prime brokerages for additional revenue. Starting July 1, Binance will implement changes to the Link Plus interface, which prime brokers use to manage institutional customer accounts. This adjustment aims to prevent firms from offering clients fee refunds that their trading volumes would not typically qualify for, thereby aligning the fee structure more closely with actual trading activities. The changes are expected to impact the revenue streams of several prime brokers who have benefited from the existing system.

The Loophole in Link Plus

The Link Plus program has been a crucial tool for prime brokers, allowing them to handle institutional customer accounts efficiently. However, several firms have found ways to exploit this system to their advantage. By bundling multiple client accounts, prime brokers could reach higher trading volumes, thereby qualifying for lower fee tiers on Binance. These brokers would then offer their clients fee refunds or charge them higher rates while pocketing the difference, leading to significant additional revenue.

Binance's Response

According to a company representative, Binance will make adjustments to Link Plus, an interface used by prime brokers to handle institutional customer accounts, beginning July 1. Several firms used Link Plus to offer clients fee refunds that their trading volumes would not have otherwise allowed, according to people familiar with the situation.

“Since last year, we have notified companies on the Link Program that we will implement enhanced compliance standards and changes to align our fee structure for Link end-users to ensure transparency and fairness,” a Binance representative said in an emailed statement Thursday.

Impact on Prime Brokers

Binance’s adjustments to Link Plus may reduce revenue for many prime brokers who exploited the system to offer attractive commissions and earn extra money through Binance’s nine-tiered fee structure. The changes will directly bind prime broker clients to the tier status to which their Binance trading volumes entitle them, effectively eliminating the option to bundle client accounts.

This means that several premier brokers are likely to lose their top-tier status. Bequant, a Malta-based crypto trading service, is shifting its attention to main trading as its primary business model revolves around arbitraging Binance’s fee tiers, according to CEO George Zarya.

Enhanced Compliance Standards

Furthermore, Binance indicated that it will limit the usage of account features that provide certain users an unfair advantage, while this project is independent of the Link Plus interface redesign. The enhanced compliance standards are part of Binance’s broader effort to ensure that its platform operates transparently and fairly for all users.

The Nine-Tier Fee Structure

Binance’s top “VIP 9” tier offers users who trade at least $4 billion per month much cheaper costs than other consumers. Prime brokers frequently reached this category by combining accounts from many clients, allowing them to trade at cheaper fees while charging higher rates to their clients and pocketing the difference.

The Future of Prime Brokerage on Binance

The changes to the Link Plus program are likely to have a significant impact on the prime brokerage industry within the cryptocurrency market. Prime brokers will need to adapt to the new rules and find alternative ways to generate revenue. This could lead to a shift in the business models of many firms, as they seek to remain competitive in a rapidly evolving market.

Conclusion

Binance’s decision to close the loophole in its Link Plus program is a crucial step towards ensuring fairness and transparency in the cryptocurrency market. By aligning the fee structure more closely with actual trading activities, Binance is helping to create a more level playing field for all users. While the changes may impact the revenue streams of some prime brokers, they are ultimately in the best interest of the broader cryptocurrency community.

Additional Reading

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