Five years ago, you couldn’t trade fiat currencies on Binance, but the exchange has gained international attention for having some of the highest trading volumes among its peers.
Even in 2018, this is no mean feat in the cryptocurrency industry, as several established exchanges have established and loyal user bases. Critics question why the world needs another exchange, but Changpeng “CZ” Zhao will not be intimidated.
In June 2018, I had a virtual call and one-on-one interview with “CZ” to discuss the rapid growth of global exchanges. At the time, Binance only supported cryptocurrency trading, but the 50% fee discount offered by its native BNB token has been a major draw for savvy traders.
Five years later, things have changed dramatically. Binance has agreed to a $4.3 settlement with the U.S. government over civil regulatory enforcement actions against the exchange. A U.S. civil case found that Binance’s policies allowed criminals involved in illegal activities to transfer “stolen funds” through its platform.
The verdict also resulted in Zhao resigning as CEO amid personal accusations against Binance’s founder that he violated the Bank Secrecy Act. Zhao pleaded guilty and was released on $175 million bail.
Looking back on that 2018 conversation, Zhao seemed keenly aware that Binance had a growing target on its back as its trading volume surpassed that of its rivals.
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Zhao argued that the exchange was under scrutiny for the authenticity of its trading volumes. He claimed that Binance accurately accounts for its trading volume, while other exchanges perform “double reporting” of both buyers and sellers of transactions to inflate numbers to attract more users.
“Being No. 1 sometimes creates other problems, especially with regulators. Regulators like to talk to No. 1. We are trying very hard not to be No. 1 all the time, but others are working very hard to increase sales and be No. 1. .”
Censorship aside, Zhao’s burgeoning exchange is thriving. A $15 million initial coin offering (ICO) laid the foundation for Binance’s launch.
Zhao spoke passionately about the role ICOs play in laying the foundation for the exchange’s development.
“The ICO really helped us a lot. I can’t stress how much it helped us. I think it probably helped us 10 to 200 times.”
The founder said that if Binance raised funds through traditional venture capital rounds, its growth rate would be quite slow. Zhao explained that approximately 25,000 users registered during the ICO stage and became “investors, currency holders, and users.”
By the time Zhao was forced to hand over power to incoming CEO Richard Teng, Binance’s $15 million ICO had grown into a company valued at $60 billion.
The outgoing CEO’s comments from about five years ago proved prophetic. Binance has faced regulatory scrutiny in multiple jurisdictions due to its aggressive expansion efforts.
The issue has come to a head with major U.S. enforcement actions and subsequent settlements. Binance also faced more localization challenges in different countries and exited countries such as the Netherlands after failing to meet judicial compliance.
The exchange has also found a more favorable space for development, with the UAE providing a new base for continued operations. CZ lives in the country and is expected to return there before returning to the United States to face sentencing sometime in 2024.
Poignantly, Coinbase CEO Brian Armstrong took to situation.
Since Coinbase was founded in 2012, we have always taken a long-term view. I know we need to embrace compliance to be a generational company that will stand the test of time. We obtained licenses, hired compliance and legal teams, and made it clear that our brand is about trust…
— Brian Armstrong️ (@brian_armstrong) November 21, 2023
“This means we can’t always move as quickly as others. Taking a compliant approach is more difficult and expensive. You can’t launch all the products customers want if they’re not legal. But it’s the right thing to do because we Believe in the rule of law.”
Armstrong’s views are representative of the entire cryptocurrency space. Some push boundaries, while others take more cautious steps. That doesn’t necessarily shield the latter from scrutiny, though — Coinbase itself remains embroiled in a legal battle with the U.S. Securities and Exchange Commission over alleged securities violations.
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