As one crypto company after another falls, the market is in rough shape.

But there’s a “key difference” between now and crypto’s bear market in 2018, according to Binance, the largest crypto exchange, which wrote in a blog post on June 21: “There is now more leverage in our industry.” But the type of leverage, or debt firms owe to one another, is just as important as how much is outstanding.

Binance says there are “two leverage types: fast and slow,” with fast leverage being found on centralized exchanges, “often with futures products,” and slow leverage occurring when funds lend to others or to decentralized finance (DeFi) protocols to invest.

The current domino effect is due to slow leverage working its way out of the system, Binance said. “When one of these gets liquidated, the affected lenders typically take a few days or weeks to realize or admit the pain. These can also have a cascading effect, but the propagation speed is much slower.”

According to Binance, “we have not seen the end of these yet.”

As the “cascading effect” continues to play out, some platforms and projects are being supported with loans from bigger fish. Others aren’t so lucky. But it’s not “a binary situation” when deciding which firms to rescue, Binance wrote, saying some companies are “just ‘bad’ projects. These should not be saved.”

I am most bullish in bear markets.

— Binance (@cz_binance) June 23, 2022

“With our position as one of the largest industry players with healthy cash reserves, we have a duty to protect users. We also have a responsibility to help industry players survive and hopefully thrive. This is the case even if there are no direct benefits to us or we experience negative ROIs,” Binance wrote. But: “Not all bailouts are the same.”

Companies that are “poorly” designed, managed, or operated are “bad projects,” the blog post said.

“Sadly, some of these ‘bad’ projects have a large number of users, often acquired through inflated incentives, ‘creative’ marketing, or pure Ponzi schemes,” Binance wrote. “Bailouts here don't make sense. Don’t perpetuate bad companies. Let them fail. Let other better projects take their place, and they will.”

Other companies with “good qualities” that have nevertheless made “small mistakes” can be bailed out, according to Binance. It defines good as “product-market fit, generating revenue in normal market conditions, sound business models, decent teams,” and says the mistakes include being overly aggressive on spending or having insufficient reserves.

As “many projects” try to engage with Binance to potentially seek investment, another big crypto exchange is offering loans to companies in need. On June 21, crypto lending platform BlockFi announced it had signed a term sheet with FTX to secure a $250 million revolving line of credit.

This followed a statement on June 17 revealing that Alameda Research, a quant trading shop founded by Sam Bankman-Fried, had offered crypto broker Voyager Digital a revolving line of credit. Voyager Digital said it had taken the credit line "considering the current crypto market conditions."

As major players with big reserves such as Binance and FTX look out at the crypto firms struggling to survive, they will likely be assessing good and bad models, and fast and slow leverage.