Binance tests pre-market trading "circuit breaker" mechanism for the first time, RED can rise up to 400% in the first three days of opening, applicability remains to be tested by the market
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Binance tests pre-market trading "circuit breaker" mechanism for the first time, RED can rise up to 400% in the first three days of opening, applicability remains to be tested by the market
Binance announced it will test a "circuit breaker mechanism" for pre-market trading on Launchpool, specifically for the RedStone (RED) token. However, it remains unclear whether this mechanism will become a permanent feature.
Navigating Web3 tides with focused insightsAuthor: Weilin, PANews
On February 25, Binance announced it will launch a test of the "circuit breaker mechanism" (Price Cap Mechanism) in Launchpool pre-market trading. This test targets RedStone (RED) token. RedStone (RED) is Binance's 64th Launchpool project, a multi-chain oracle across EVM and non-EVM chains. In this pre-market trading rule, Binance stated that to promote innovation and enhance user trading experience, it introduced the "circuit breaker mechanism." However, this mechanism will only be tested during the RED token launch, and whether it will become a long-term feature remains uncertain.
Following Bitcoin's crash on March 12, 2020, Huobi once introduced partial liquidation and circuit breaker mechanisms, but these measures were not widely adopted by exchanges. At that time, Binance's former CEO Changpeng Zhao said implementing circuit breakers in the cryptocurrency market was unlikely, arguing they could only work in completely monopolized markets and were unworkable in free markets. This time, many crypto users have expressed mixed views about the new mechanism.
Binance Tests Pre-Market Trading Circuit Breaker Mechanism with RED Token as First Trial
According to Binance's announcement, users can start staking BNB, FDUSD, and USDC into the RED rewards pool on the Launchpool website from 08:00 on February 26 (UTC+8) to earn RED, with the event lasting two days. Binance’s pre-market trading will list RedStone (RED) at 18:00 on February 28 (UTC+8), launching the RED/USDT trading pair.
To drive innovation and improve user trading experience, Binance has launched a new feature in its pre-market trading—Price Cap Mechanism. This mechanism limits the maximum trading price during the first 72 hours of pre-market trading, where the token price increase cannot exceed a certain percentage of the initial listing price. After the first 72 hours of pre-market trading, there will be no more price restrictions, and trading returns to normal.
As noted, this price cap mechanism is only being tested during the RED token issuance, and it is currently unclear whether this feature will become a permanent function for future pre-market trading.
Under the pre-market trading rules, the individual maximum holding limit is 5,000 RED. The specific price cap rules are as follows:
February 28, 2025, 18:00 – March 1, 2025, 17:59 (UTC+8): Maximum order price capped at 200% of the opening price
March 1, 2025, 18:00 – March 2, 2025, 17:59 (UTC+8): Maximum order price capped at 300% of the opening price
March 2, 2025, 18:00 – March 3, 2025, 17:59 (UTC+8): Maximum order price capped at 400% of the opening price
After March 3, 2025, 18:00 (UTC+8): No price limits
In addition, RedStone (RED) has a total/max supply of 1 billion RED, with a total of 40 million RED allocated to Launchpool (4% of max supply), and an initial circulating supply of 280 million RED (28.00% of total supply).
The hourly individual reward caps are as follows:
BNB Pool: 66,666 RED
FDUSD Pool: 8,333 RED
USDC Pool: 8,333 RED
Circuit Breaker Mechanism to Address New Coin Volatility—Is It Applicable to Crypto?
The "circuit breaker mechanism" referred to by Binance can also be seen as a form of circuit breaker, although Binance has not explicitly defined any trading halt periods. This mechanism originated in traditional financial markets, where when an index fluctuates beyond a predefined threshold, exchanges pause trading to control risk. For example, the New York Stock Exchange implements three circuit breaker levels based on the S&P 500’s decline from the previous day’s close—7% (Level 1), 13% (Level 2), and 20% (Level 3). When the first two thresholds are triggered, trading halts for 15 minutes. At Level 3, trading stops entirely for the day.
Supporters argue that circuit breakers help stabilize market sentiment and prevent investor overreaction. Binance’s tested price cap mechanism aims to prevent extreme volatility when new tokens launch, reducing wild swings and avoiding price spikes caused by speculation or manipulation. The goal is to make pre-market trading more controllable and predictable, giving the market sufficient time to absorb information and avoid sharp post-listing fluctuations.
However, critics believe this mechanism may contradict the decentralization principles championed by the crypto community. Given the high volatility of crypto markets, setting circuit breaker thresholds is inherently challenging. Some users have considered whether circuit breakers could be built directly into a token’s algorithm and design. But given the industry’s prevailing free-market fundamentalism, such ideas seem impractical.
Moreover, crypto markets operate 24/7 across multiple platforms. If one exchange introduces a circuit breaker, it could widen inter-exchange price gaps and trigger arbitrage. Crypto user @ChequerCat666 pointed out: “It won’t work unless this token is exclusively listed on Binance across the entire network, including DEXs (decentralized exchanges).” On the other hand, supporters wonder if an OPEC-like international coalition could be formed to jointly design and implement circuit breaker mechanisms.
User MetaverseDrug@MetaverseDrug suggested Binance’s new mechanism might deviate from its original intent: “The intention might be to prevent projects from turning into ‘Christmas trees,’ but under current market conditions, well, no need to worry about short squeezes anymore.” Macro-economist and crypto KOL White Ding @Geight16 argued that having only an upward price cap without a downward one seems unreasonable.
Meanwhile, KOL DeFi Miner @DeFi8362 commented on X that the duration of this price cap mechanism is too long: “Now it depends on how Binance sets the opening price. If it’s set too low, prices could hit the 400% cap continuously for three days, effectively locking the market. If it’s too high, the rule becomes meaningless. I think it’ll likely be the former. The first time I encountered a circuit breaker was during Huobi’s token sales. But the pause was short—around ten minutes—and actually helped reduce unnecessary post-opening volatility and allowed retail investors to think more rationally about pricing. Three days, however, feels way too long.”
After the March 12 Bitcoin Crash, Huobi Introduced a Circuit Breaker—How Effective Was It?
As mentioned above, on March 12, 2020, Bitcoin experienced a “black swan” price crash. Between March 12 and 13, Bitcoin’s price dropped over 50% before rebounding. During this collapse, BitMEX’s liquidations exceeded $500 million within an hour. Platforms suffered outages, with BitMEX attributing the downtime to DDoS attacks.
However, BitMEX’s temporary suspension of trading during the outage had an effect similar to a stock market “circuit breaker,” especially as trading halted for several minutes during peak investor panic. This led to reflections within the industry, with some suggesting BitMEX inadvertently played a “circuit breaking” role.
Huobi DM (Huobi Derivatives Market), Huobi’s crypto derivatives trading platform, later announced a new liquidation mechanism offering partial liquidation instead of full liquidation. Under this system, the platform calculates a user’s margin ratio based on exposure and gradually auto-liquidates positions until the margin ratio exceeds zero.
Huobi DM explained: “With the new mechanism, the system will automatically begin step-by-step liquidation of user positions. The process also includes a circuit breaker function, which pauses liquidation when a significant gap is detected between liquidation price and market price.”
Nonetheless, a Huobi Futures representative clarified on Twitter that this differs from traditional market circuit breakers, as trading itself does not stop during liquidation.
Tushar Jain, managing partner at crypto investment fund Multicoin Capital, said at the time that a circuit breaker mechanism seemed helpful for the crypto industry, noting that price movements proved the sector needed such safeguards. He emphasized that market structures had failed and leading exchanges must collaborate to prevent history from repeating.
But Binance’s former CEO Changpeng Zhao said in March of that year, “Circuit breakers can only work on a completely monopolized exchange. Bitcoin trading is a free market, available across multiple exchanges—it simply won’t work….. Don’t forget about decentralized exchanges either. And who says 7% is the right number? Why not 1% or 70%?”
Huobi’s circuit breaker mechanism was not widely adopted by crypto exchanges afterward. Now, Binance is taking the first step by testing its “price cap mechanism,” further exploring this direction. What market impact will it bring? The developments ahead are worth watching closely.
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