Crypto exchange Binance has announced that it will refund users a total of 1 million Tether ($1 million) due to its mishandling of the CyberConnect (CYBER) token incident. This comes after a price discrepancy on listed CYBER tokens occurred, leading to users being unable to redeem their staked assets.
What happened?
The incident occurred when a liquidity crunch caused CYBER cross-chain bridges on Korean cryptocurrency exchange Upbit to be constricted. As a result, arbitrageurs started borrowing CYBER from Binance to profit from the price differential. This, in turn, led to users who staked CYBER in Binance's Flexible Earn Program being unable to redeem their tokens, as the staked assets had been borrowed and reached the loan limit.
Binance explained the situation, stating, "Under extreme conditions, borrowers may not be able to repay their loans in time, or the redemptions of subscribed assets may experience some delays. This was the case on 2023-08-31."
Remedies offered
To rectify the situation, Binance has offered 800,000 Tether (USDT) and 871 CYBER in accrued staking rewards to the 887 users who were affected and unable to redeem their CYBER products. Additionally, the CyberConnect Foundation has sponsored 200,000 USDT worth of vouchers, which will be distributed to all users who staked CYBER via Binance Flexible Earn during the incident, regardless of whether they chose to redeem their tokens.
Increasing interest rates to deter lending
In order to prevent similar incidents from occurring in the future, Binance has stated that it will take action to increase interest rates on staked assets during periods of high token volatility. This is to discourage users from borrowing assets and causing liquidity issues.
However, it is important to note that Binance reserves the right to amend or cancel this announcement at any time and for any reasons without prior notice.
