Binance’s CEO Changpeng Zhao revealed that the company’s stock was valued at $ 1.6 billion and is now worth nearly zero

Binance’s CEO Changpeng Zhao revealed that the company’s stock was valued at $ 1.6 billion and is now worth nearly zero

Buying digital tokens named after the dog meme earlier this year seems to be a perfectly rational way to participate in a bright new future of finance, at least in some of the most progressive circles.

It was done-promoted a new, low-risk way to participate in the cryptocurrency exchange Binance action. It encouraged clients to invest in what is called Terra USD. Tokens were known in the jargon as “stable coins”.

It’s a type of cryptocurrency that acts as a savings account and always promises to be worth $ 1. Binance said that this particular Stablecoin offered something special to customers who bought, sold and invested in various cryptocurrencies using its service. The Terra USD proposed by Binance to its clients could somehow be “safe” and “high yield”.

 Cryptographic enthusiasts are familiar with Terra, and  Terra has proven to be neither secure nor profitable, as anyone familiar with the usual financial rules can guess.

According to critics, the coin was a Ponzi scheme,  the beginning of a meltdown that plunged Bitcoin prices and urged companies across the industry to rush to dismiss employees and freeze customer withdrawals.

Bitcoin has fallen about 70% since its peak in November, and the industry calls this recession the winter of cryptocurrencies. This was bad news for the enthusiastic investors and for Binance itself.

On May 16, CEO Changpeng Zhao revealed the extent of Binance’s terra-related losses. The company’s stock was valued at $ 1.6 billion and is now worth nearly zero.  Zhao did not pay attention or issue a warning.

“Well, I have a few things,” he said in an interview that day. “I don’t care  about money.”

 His remarks while drinking $ 14 orange juice at a French restaurant at the Four Seasons Hotel in Dubai came from the wealthiest man in the money-only industry and was unbelievable.

Zhao is slim and has a shaved head, a soft voice, and a wardrobe that looks like it’s made up of a completely black binance shirt.

He is also like a cypher. Depending on who is speaking, he a)  a group of vertically integrated digital currency giants (including competitors such as Binance and FTX) will replace not only the world’s exchanges but the entire world’s financial order.

A pioneer in innovative systems or b) operates the world’s largest unlicensed casino.

 Recently in January, Zhao (Cryptocurrency expert CZ) was one of the ten wealthiest people in the world, at least on paper. According to the Bloomberg Billionaires Index, his net worth plummeted with the price of Bitcoin, dropping from $ 96 billion to $ 11 billion.

Nonetheless, Binance is by far the largest company in the field of cryptocurrencies, processing more transactions than the following four exchanges combined.

It is estimated that more than $50 billion trades each day on the platform, which typically takes a 0.1% commission. That means Zhao, who is by far the company’s largest shareholder, makes money irrespective of whether the customer buys or sells. When he spoke about the Terra collapse, he noted: “What amazed me was its resilience.”.

The company was not bailed out. It does not have a central bank. Government intervention was not taking place.” Zhao noticed that the market crash was ongoing, but he didn’t see much improvement. He said that the industry continued to flourish.

Late last year, Zhao relocated to Dubai. Despite the vast wealth generated by its oil-rich neighbours, the futuristic desert city, where foreigners outnumber locals by 9 to 1, where tourists ski indoors in 110-degree heat, and where a sense of place is long gone, was a fitting location for someone who had felt at times as if he did not have a country at heart.

A Chinese-born Canadian who emigrated to Vancouver from Hong Kong at the age of 12, Zhao graduated with a degree in computer science from McGill University in Montreal. Because Zhao doesn’t stay in one place for very long, he has moved around the world his entire adult life.

His first job was writing code for the Tokyo Stock Exchange when he was in his twenties. The following year, she worked for Bloomberg LP (publisher of this magazine) in New York.

After that, it was on to Shanghai, where he co-founded a startup that created software for high-frequency traders before founding Binance in 2017. He found a jurisdiction that would not try to throw his company out or fine him for selling unregistered securities after the Chinese government banned crypto exchanges the same year.

“At that time, we lived in two suitcases,” he recalls. It was one big suitcase and one small suitcase at the time.

Having finally found a place to call home, he felt truly at ease in Dubai. Binance’s newly formed team was described by him as “the adults in the room,” since they had just purchased an apartment, bought a minivan, moved his possessions, and leased an office.

He noted that at 45, he was at least a decade older than most crypto entrepreneurs and boasted of close relationships with Emirati officials.

Cryptocurrencies turned out to be a more solid investment than many critics believed, he said. Binance demonstrates this.

“We have 120 million users who trust us in saving lives,” he said. “We protect our users. We contact governments and regulatory agencies. As you know, we are stable boys. “

 That was a bold claim. Money laundering, fraud, and hacking are part of the history of the industry, and even the finest crypto projects appear to be studded with sketches to the non-laser eye. However, in Binance, there is a certain degree of perfection in sketching.

The company is currently under investigation by almost every major US financial regulator in the world, including the Department of Justice, the Commodities Futures Trading Commission, the Internal Revenue Service, and the Securities and Exchange Commission.

 

Binance presents these investigations as part of a sincere negotiation with the government that he did not know what to think about cryptography. But it’s not entirely clear that regulatory agencies see it that way.

Binance speaks here through court documents, company filings, and interviews with more than 40 incumbent and former employees and business partners to offer unregulated bets on small digital tokens called bitcoins.

Has grown significantly. (The most famous of these Dogecoins originally started as hoaxes and now have a market capitalization of $ 8 billion.)

From there, Binance is a highly leveraged financial product linked to the value of these coins and expanded to. These derivatives are illegal in many jurisdictions, but they are not based on any jurisdiction, so this does not affect Binance.

For years, critics have warned of loopholes that criminals and money launderers could move money through exchanges.

In June, Reuters reported that Binance was used for at least $ 2.35 billion in money laundering, including funding from the dark web drug market, North Korean hacking groups, and common scammers. 

Binance states that these claims are misleading, citing a strong security and investigation team of 120 people, including former senior law enforcement officers in the United States, United Kingdom and Europe.

As far as Zhao is concerned, Binance is merely acting as an offshore exchange, reminiscent of modern Cayman Islands banks, or, less so flattering, the Republic of Pirates, a pseudo-anarchist government that controlled commerce in the West Indies in the early 18th century.

 Either way-and Zhao would love the Cayman Islands analogy-he said it was over at the time. “Offices, headquarters, parent companies-initially we told them they didn’t have it, and of course, they were all angry,” he said, referring to a question from the regulatory agency. “So we made it all last year.”

 In finding a place to stay after years of the breach of law, Zhao is following a popular path for technology disruptors such as Airbnb, Uber, and PayPal. Ignore government requests as much as possible.

Then, when you’re big enough, work with those governments to gain market share. But crypto exchanges are now intertwined with much of the world’s finance, and regulators already want to set an example for what they believe to be the worst players and create potentially spectacular ratio conflicts.

It shows their desire. When that’s all done, Zhao can be prosecuted. Or he may be the wealthiest person in the world.

Binance has always established itself as a decentralized company. If “company” is even the correct term for what Zhao is building. Legally, it is owned by a company called Binance Holdings Ltd in the Cayman Islands.

Their brand (like a tattooed logo on Zhao’s right forearm). Ownership of this entity is not disclosed. Zhao is the only owner of Binance Capital Management registered in the British Virgin Islands, buying crypto data site CoinMarketCap for $ 400 million and putting $ 200 million

in shares of a company that Forbes wants to list. I threw it. According to company records, many binance businesses such as  Malta, Singapore, Ireland, France and Italy are wholly owned by Zhao, either directly or through an entity under his control.

Most transactions on Binance are made through his flagship exchange, Binance.com. This exchange is based on who knows where, and what God owns is who knows. When the trader signs up for a Binance account, he agrees to trade with the “Party that operates Binance”.

 This is subject to changes in the state of the Terms of Service at any time. “The Binance platform doesn’t seem to be owned by a company or other legal entity,” the lawyer wrote in a note seen by Bloomberg Businessweek. The client gave up, but others who tried to sue Binance quoted the ectenia of companies and executives.

 Zhao said in an interview with the Chinese media that the term “company” is used only by outsiders. For him, binance is an “organization.” Employees are “team members”. Whatever it is, Binance doesn’t seem to have a traditional shareholder composition or board of directors.

Zhao says that along with the crypto ideology, he is a fan of leaderless movements gathered around the immutable logic of the blockchain. But when it comes to Binance, former employees and investors say that Zhao is the only one in control.

“After all, he’s a holding company,” said a former executive who asked Zhao not to be known so as not to upset him, as quoted in the article.

 For most Binance investors, this is not a problem. Their investment in Zhao’s exchange is not from stocks, and although Binance seems to have few outside shareholders, it is through its token known as BNB.

Today,  coins trade for about $ 220 each, with a total implicit market value of about $ 36 billion, but Binance first sold at the ICO in 2017  for 15 cents each. This stands for Initial Coin Offering, an unregulated cryptocurrency version of the IPO. “Blockchain has no borders,” said Binance’s investor prospectus.

In contrast to regulated exchanges like Coinbase, those who wanted to trade on Binance early in the company had to buy Bitcoin first.

They transfer funds from their bank accounts to regulated exchanges before sending them to Binance or sell something for cryptocurrencies (used cars, opioids), for example, or cryptocurrencies from other enthusiasts.

You can quit the banking system by buying and paying cash. With Binance.com, you can open an account from almost anywhere in the world with just basic personal information and an email address.

There is nothing to prove who you are. Recently, users with unidentified accounts can’t do much but are allowed to withdraw up to $ 120,000 worth of 2 Bitcoins a day for years before the 2021 policy changes. It was done.

The company has lowered its limit to 0.06 Bitcoin or about $ 1,200 per day at today’s price. “We are probably one of the first companies to grow in 180 countries at the same time,” says Zhao today-that is, in almost every country. “There were users everywhere. There were teams everywhere.”

 But it didn’t make sense anywhere, anywhere. Zhao himself is a nomad, working in hotel rooms, rental apartments and resorts around the world and communicating with his colleagues via text, email and video calls. But for years, former employees say Binance also had a secret home.

Not only did this violate the company’s ideology of being a decentralized “organization,” but it was also impractical because it was based in China, where cryptography is banned.

As a result, more than 100 Binance employees check in to their offices in Huangpu District, Shanghai each day, and Beijing closes competing exchanges sitting in traditional workspaces with bilingual name cards on their desks. did.

They were hired under the company’s alias Unique Cultural Development and sought a business visa. They said they were told to pay attention to the company’s goods in public and not tell anyone where they worked. 

Then, in November 2019, they were told to pack up and leave the site. They packed computers, desk toys and other small items.

According to some who were there at the time, some business cards were rolled up and soaked in sink water to make them unreadable. They were placed in the constellations of coworking spaces around Shanghai or went abroad like Zhao.

Zhao denied it when The Block, a cryptocurrency news agency, reported that the Huangpu office was the subject of a “police attack” as part of a crackdown on Chinese cryptocurrencies.

Not only was there no assault, but he also claimed that there was no binance office in Shanghai. “No cops, no raids, no offices, were present there” he tweeted.. He called Brock’s report “FUD”.

This is an acronym for “Fear, Uncertainty, and Doubt” and is used as an insult in the cryptocurrency world to describe news that is considered useless for Bitcoin recognition.

“We sue,” he added. Brock updated the story, revealing that the term “raid” is controversial but otherwise solid.

Zhao didn’t complain. During an interview at  Dubai Four Seasons, he did not deny the existence of an office in Shanghai. “Government officials visited the office,” he said. “It wasn’t even a regulatory agency.

He was just a government official.” Then he began some media criticism. “As a news coverer, we can actually write two very different stories, right?

He continued with a conspiracy smile. “You could say, ‘This guy has evacuated to a restaurant’ or ‘He’s slowly walking into the restaurant and enjoying the view of the sun. “

 He paused and looked around him to show his taste. We were in an empty room checked by Zhao’s guards. The sun shined through the window and then Zhao continued that there were actually a lot of stories based on the very wrong information or rumor.

The cryptocurrency industry has always been associated with stories. The currency of the country, which is a  Bitcoin booster, has long been pointed out, but it is based on the collective belief and government legislation that is the “statutory banknote” of fiat money.

But while the dollar benefits from a broader agreement to retain its value more or less over time, cryptocurrencies, regardless of their inherent usefulness, have a common belief that they will rise sharply. It is increasing rapidly in between. “why?

I do not know why. It may be a rat lecture. ” Sports media entrepreneur Dave Portnoy acted as the mascot of meme equity investors in describing investments in ambiguous tokens that were not traded in Binance. “If you’re a table tennis fan, go to the first floor.”

 Binance is a “huge sitcoin casino,” according to one trader on the exchange. Those who demanded anonymity for fear that Binance would retaliate by freezing his account say Zhao deserves praise for recognizing that much of the crypto attraction was pure speculation.

“He took the stupidest part of the industry and made it very easy to use,” Binance’s message has always been, “Go buy your Dogecoin and get rich,” says the trader. Exchanges offer even more tokens than Binance, and companies use a “rigorous process” to validate their lists.

She says Binance began to evaluate how coins were promoted after Terra’s collapse. Nonetheless, Binance’s approach to sitcoins became a key differentiator in the early days of the company.

Coinbase, the major US exchange, offered only three tokens, while Binance sold over 100. These were sold like protein shakes in the MLM approval program. Influencers have reduced transaction fees for everyone they refer to.

Binance held a contest where the most traded users, such as Lamborghinis and Maserati, compete for prizes. Volunteers, known as Binance Angels, promoted the company on Telegram chat and hosted face-to-face events to spread their wisdom on how to put money into cryptocurrencies.

According to Binance, angels are motivated by the love of the crypto community, not the desire to work for free and get rich. “They’re like priests,” says HeYi, a former TV host who became a cryptocurrency influential person and is now the company’s chief marketing officer and co-founder.

Despite the ICO’s claim that Binance is a “cryptocurrency-only” exchange, Zhao seems to have had much broader ambitions from almost the beginning.

A former product manager recalls at a  job interview in 2017 that Binance wanted to control not only the cryptocurrency exchange market but also exchanges like Nasdaq. To do this, you need to serve customers who do not yet own the cypher. This means scrutinizing the banking system and regulations.

“Early cryptocurrency adopters are okay offshore,” Zhao told Dubai Four Seasons. “But the rest are average users. They probably prefer regulated exchanges.”

 Other crypto exchanges have made similar calculations, but while Coinbase is developing a policy that appears to be designed to monitor US regulatory agencies: Binance.com remains an unregulated exchange, but we will also work to establish a regulated local exchange where users can buy cryptocurrencies in dollars and other currencies.

  Binance opened courts in the governments of Japan, Malta and Singapore, eventually blocking all governments from opening. Meanwhile, other regulators, including the Netherlands, South Africa, Thailand and even the Cayman Islands, have warned that the exchange should not operate locally. .. Zhao described these failures as frustrations.

This is part of the process of “examining multiple locations to see which ones are cheaper with cryptocurrencies”.

 In the UK,  there were two competing binance businesses. According to a former employee, it is a hallmark of a decentralized business strategy that has fueled fierce internal competition.

There was little contact between the two subsidiaries, so one executive said he hadn’t found the other subsidiary until he congratulated him on hiring someone he had never met before. Jung of Binance says the British team worked together.

She said of the company’s strategy: “It’s not a waste of time.”It is targeted.” In June 2021, the

Financial Conduct Authority of the United Kingdom suspended all “regulated activities” in its subsidiary Binance Markets Ltd., the country. She declared that Binance “cannot be effectively regulated.”

Binance has posted a notice on its  UK website, but Binance.com remains open to domestic traders as it is legally unrelated to the accused UK subsidiary. In 2019, Zhao founded Binance.

He said the United States is completely independent and seeks to comply with US law by restricting access to higher-risk products. However, in 2020, Forbes reported that Binance.US received a leaked document detailing the proposed “bait-and-switch” strategy as a  strategy to divert audits from major exchanges.

Binance said the proposal was misrepresented and accused of defamation, led by Charles Harder, a lawyer known for dismissing Gawker Media on behalf of Peter Thiel. Forbes stood behind his story and Binance eventually withdrew the proceedings.

Zhao said in Dubai that “the article is inaccurate,” but the dispute played no role in his decision to raise $ 200 million for the magazine’s stock, creating editorial issues. He added that it would not interfere. When asked what was wrong with the article, he said he wasn’t sure.

Some say Zhao hasn’t been to the United States for years and has confirmed that he is at risk of being arrested. He said it wasn’t. He only avoids the country so as not to cause conflict. “I think I can go to the United States, no problem,” he said.

“But I would also like to say that I don’t want to give the impression that we are basically trying to recruit new users there.” When he speaks at a conference in the United States, he does so via Zoom.

 Binance is currently under SEC investigation into the possibility of unregistered securities being sold during 2017 ICOs and insider trading. We are also faced with questions from agencies about the relationship between global exchanges and the US military. Todd White, the managing partner of Rulon & White Governance Strategies, a Washington-based lobbying firm focused on cryptocurrencies, said these investigations were the result of Zhao’s failure to take compliance seriously. “They just created exchanges around the world,” says White. “I understand  you’re trying to make something, but the rules for preventing money laundering are important.”

 At a 2018 meeting, White urged Binance executives to take compliance more seriously but said it was rejected. “They were very negative,” he says. “Intangibles are a strategic choice. You can’t sue the cloud.” Binance disputes this account and states that it takes compliance seriously.

 Ironically, Binance is more centralized than the largest financial institutions for companies built on Wall Street scepticism. Today, he is also an exchange, brokerage firm, savings bank,  venture capital investor,  data provider, and “sitcoin casino” operator. In other words, Nasdaq, Charles Schwab, Bank of America, Andreessen Horowitz, Morningstar and Caesars Palace are all in one. Zhao’s crypto organization is “vertically integrated in a way that traditional financial institutions never allow,” said Lex Sokolin, an economist at blockchain company ConSensys Software Inc.

In short, Binance’s business model is full of potential conflicts of interest. Given its size, for example, listing on an exchange usually caused the price of coins to skyrocket, and trading activity surged shortly before the listing of Binance, raising some critics to suspect insider trading. Jung, a spokeswoman for Binance, said employees are bound by a “strict code of ethics” that prohibits short-term transactions. She says she will fire anyone who finds the company violating this policy.  The company is popular with crypto traders, but its history has seen outages, freezes on withdrawals, and at least one hack.

As cryptocurrency exchanges competing with Binance mature, they continue to operate against regulations designed to protect consumers, said John Reed Stark, a former head of the SEC’s Internet Enforcement Bureau. I am saying. “You just run without fiduciary infrastructure,  consumer protection, and oversight. You and I are completely free,” he says. “That’s not what you want when it comes to your finances.”

 In Dubai, Zhao pointed out that many of the criticisms levelled in Binance could apply to the company’s competitors as well. Many crypto exchanges face criminal accusations and securities breaches, and even established competitors face regulatory issues. FTX co-founder and Zhao’s rival Sam Bankman Fried took advantage of his wealth and media familiarity to donate huge sums to democratic politicians.

Despite seeking support from Tom Brady, Gisele Bundchen and Steph Curry, FTX has restored the shelter with taxes. (Currently based in the Bahamas.) Meanwhile, Coinbase has adopted Sitcoin since adopting an early conservative approach and now lists more than 100 tokens, including Dogecoin and Shiba Inu. doing. Metajokes and real investment opportunities in the hype cycle. The Coinbase website specifically has a guide on how to invest in a leveraged sitcoin index whose ticker symbol is “Bullshit”. (Binance has a similar guide.)

 Bullshit prices are down 99.96% from last fall.  Zhao acknowledged some of the company’s failures and said he had changed course over the past year. Earlier, Binance sought to explain to regulators why large-scale unregulated crypto exchanges were not an issue. However, Zhao said: “We do not educate them and do not change their mindset. It’s easier for us to change than they are. “

 Zhao tried to point this out through some kind of influential campaign. Forbes’ investment through the proposed special purpose vehicle seems to have collapsed as investors suffer from SPAC. However, Binance has invested tens of millions of dollars in well-known football sponsorships (including Argentina’s national club, Lazio in Italy and Brazil’s top flights) and $ 500 million to support Elon Musk’s bid for Twitter. I promised.

“I want to support freedom of speech,” Zhao said of his contract with Musk, but he was ambiguous when asked how he harmonizes Harder’s employment with Forbes’ proceedings and their decisions. “Freedom of speech is difficult to define,” he said. “I have never talked to Charles Harder. Our team took care of me.”

 As part of Zhao’s new stage as an adult in the room, he was in a media frenzy. His spokeswoman suggested giving Businessweek a glimpse of his human side, perhaps a tour of his favourite neighbourhood in his new hometown. However, Zhao seems to have little recognizable interest other than work, and the tour was downgraded to Zhao’s minivan, the black Toyota Granvia hotel, to another hotel in a 10-minute drive.

 “People recommend Rolls-Royce and Bentley, but none of these cars has flat seats,” Zhao said at the push of a button on one of the two drivers sitting in the third row. I sank to my knee. “That was my only requirement.” If he had one thing he liked about Dubai when we drove,  it wasn’t indoor skiing or ultra-modern architecture, but a regulated climate. It became clear that. It’s difficult to do that tour.

There were other signs that the shift to Zhao’s customs may not have been entirely urgent. On the day of the interview, Zhao said reporters could visit the new Dubai office. However, after a flood of emails, phone calls and text messages with various excuses by assistants and PR consultants, Binance officials said the office was closed due to the surge in Covid-19 cases.

That was strange. Zhao did not mention the illness during the interview and there was no one in the company. The day before, Binance arranged another interview with the company’s Head of Middle East operations. He appeared unmasked in a crowded hotel lobby that appeared to be having a face-to-face meeting.

 

Ten days later, Binance Businessweek’s advertising director offered a virtual tour led by Peng Pheng Tan, a member of the HR team. Before the tour, Binance stated that the office wasn’t always busy, but gave the impression that at least some activity was inside. “That is the only reason why we have an office for,” Zhao said.”But people only go to the office a few days a week,” Tan said something similar when he entered the elevator in a building near the Dubai World Trade Center, with a view from her phone. “We are working on a shared office system,” she said.  ‘

Then she went through a set of blue doors. Inside was a vast space with breathtaking views of central Dubai. There were bare concrete floors, bare ducts, drywall, etc. There was an awkward pause. “No one comes here,” she said. Another break. “Yes, basically”

Meanwhile, Zhao and the rest of Binance’s management are back on the road. The day after the interview, he flew to France to attend the Cannes Film Festival (Binance hosted a pizza present during the event) and went to Paris in the summer. It enjoys a winning streak in Europe, and Binance Italy has recently received regulatory approval alongside Binance France. Recently, Zhao has raised the possibility that Paris could function as another home. The following month, Zhao tweeted that Binance “has hired 2000 recruitment jobs,” unlike other crypto companies that are severing employees amid a slowdown.

He tweeted a photo of himself shaking hands with a fictitious employee in what looks like a busy office. It was fascinating, if not exactly real. This office is the same as the office of Shutterstock, a free stock image site. Zhao’s head was Photoshopped on the model’s body. Binance’s Jung says the tweet was “part of a meta-joke,” as if Zhao was playing the role of his  Shiba Inu. Tweets have received over 50,000 likes.

edited and proofread by nikita sharma