Binance Boosts Market Maker Incentives in Wake of Record Hack

Binance has increased the incentives it offers some market makers to trade on its platform, as the world’s largest crypto exchange seeks to bolster activity on its venue after suffering a record $6.3 billion hack.

The company reached out to smaller trading firms soon after its breach last week, offering higher rebates in its spot and futures markets, according to people familiar with the matter.

Binance ranks market makers in tiers based largely on how much liquidity they provide, according to its website. Firms providing a bigger share of trading volume qualify for higher tiers and typically receive larger rebates, reducing their trading costs.

Under the one-week promotion, so-called Tier 2 and 3 market makers will receive the same rebate rates as Tier 4 participants, the platform’s highest ranked group, said the people, asking not to be named while discussing private information. The changes are aimed at giving smaller liquidity providers a higher financial incentive to quote prices and maintain deeper order books on the exchange, the people added.

Binance’s updates following its security breach helped reassure the market, a company spokesperson said, adding that “just as we prioritize clear communication, we take immediate measures to maintain our core strength: our liquidity.”

Read More: Frantic Binance Hackers Created Windfall for Fast Crypto Traders

Rebates are a common mechanism used across financial markets to encourage market makers to place orders on an exchange. Rather than charging a fee, the venue pays traders providing liquidity a small amount when their orders are executed. They are aimed at ensuring there are enough buyers and sellers on a platform to keep markets running smoothly and spreads tighter.

Market makers play a central role by continuously quoting buy and sell prices, providing liquidity that allows other investors to trade without causing large swings in prices. Bitcoin order book depth on Binance fell about 30% in the 24 hours after the hack, from $45 million to $32 million within 1% of the price, according to Talos. Market depth is a gauge of how much trading can be absorbed without sharply moving prices.

The temporary boost to Binance’s incentives come as the exchange faces the challenge of maintaining confidence and activity on its platform after falling victim to crypto’s largest security breach on record, which the Federal Bureau of Investigation has attributed to North Korean hackers.

Read More: Binance Outflows Reach $4.7 Billion After North Korea Hack (1)

After first detecting the exploit on Thursday evening, Binance froze customer withdrawals, before resuming them on Sunday. Traders have pulled billions from the exchange since then, with net withdrawals reaching $4.7 billion by Monday. While sizeable, the outflows represent a small fraction of the total assets held by Binance. The company has pledged to cover the losses from the hack.