Binance's April Fool's incident caused significant market volatility, leading to massive liquidations.

The incident sparked community outrage, with calls for a boycott of Binance and accusations of prioritizing profits over project utility.

Binance, the world’s largest cryptocurrency exchange, has found itself in hot water following a series of events that began on April 1 and led to significant market volatility and massive liquidations.

The incident unfolded after Binance announced a new AI-powered cryptocurrency, Act I The AI Prophecy (ACT), which is capable of learning and adapting in response to market conditions.

According to Binance, the AI was created using cutting-edge technology from the metaverse and Web3, and it is able to perform complex tasks such as arbitrage, liquidity provision, and market making.

However, the announcement of the AI cryptocurrency sparked rumors among traders that Binance was planning to exit the crypto market altogether and focus on other investments.

These rumors were fueled by the fact that Binance has been known for its focus on trading volume and liquidity, rather than on supporting blockchain projects with real-world utility.

Some traders also accused Binance of prioritizing its own profits over the interests of its users, especially during periods of market stress.

As a result of the rumors and accusations, there were widespread calls for a boycott of Binance, and the hashtag #BoycottBinance began trending on social media.

Meanwhile, several Binance-listed tokens, including DEXE, KAVA, HIPPO, TST, LUMIA, and QUICK, plummeted more than 50% in the past day.

According to on-chain data, Binance quietly reduced leverage limits on these tokens, which forced market makers like Wintermute to close their positions automatically due to excessive risk.

Prior to the reduction in leverage limits, Wintermute had reportedly used excessive leverage to arbitrage price discrepancies between different crypto exchanges.

However, with the new limits imposed by Binance, Wintermute’s positions were liquidated, leading to a cascade of selloffs that pushed prices down further.

In a statement, Wintermute CEO Evgeny Gaevoy clarified that the massive altcoin selloff on Binance was triggered by an arbitrage opportunity in an Automated Market Maker (AMM) pool, and not an intentional strategy.

“After a large arbitrage opportunity opened up in one of the AMM pools, several market makers, including Wintermute, began closing their positions in several tokens due to new, lower leverage limits set by Binance,” Gaevoy said.

“As a result of these closures, the price of the tokens dropped sharply, leading to further closures and amplifications in a feedback loop,” he added.

Moreover, Binance cofounder Yi He said in a statement that the exchange is investigating the incident and preparing a detailed report for the community.

In a post on Wednesday, Yi said that Binance is committed to transparency and will provide a full explanation of what happened.

“We are aware of the recent rumors and speculations circulating online concerning a large market maker allegedly closing their positions on Binance, leading to a rapid decline in several altcoins,” Yi said.

“We can confirm that this is not entirely accurate, and the situation is more nuanced than that,” she added.

According to Yi, the incident began when a third party engaged in an arbitrage strategy that created significant price discrepancies between different exchanges.

“This third party then used excessive leverage to amplify their gains, which ultimately led to them being liquidated by another exchange.”

“As the third party’s positions were unwound, it put pressure on other market makers to close their positions as well, due to the reduced leverage limits,” Yi said.

“This chain reaction resulted in a broader selloff across several altcoins.”

Despite her statement, some members of the crypto community expressed skepticism over Binance’s explanations, and accused the exchange of prioritizing its own profits over the well-being of its users.

“They’re more interested in the volume than the project’s utility. That’s why they didn’t want to reduce the market maker’s position but rather increased it,” one user said.

Another user added, “They’ve been scamming people since 2019. I’m done with Binance. Time to move on.”

Meanwhile, several other users pointed out that the hashtag #BoycottBinance was trending on X, formerly known as Twitter, as frustrated traders called for a boycott of the exchange.