Has Binance blown its chance to rule the crypto markets?

As 2022 drew to a close, Binance co-founder and chief executive Changpeng Zhao appeared to have the world at his feet.

Sam Bankman-Fried, co-founder of Binance’s biggest rival FTX, went to Zhao in November last year hoping the Binance chief would bail out his own exchange. Zhao declined, sealing FTX’s fate. On November 10, one day before his crypto empire filed for bankruptcy, Bankman-Fried tweeted his competitor: “Well played; you won.”

The collapse of its biggest rival left Binance the undisputed leader in digital assets, controlling more than half of the fast-evolving cryptocurrency market by the end of 2022.

If Binance could ride out the regulatory onslaught that followed the FTX implosion, it would be the go-to venue for trading crypto tokens, and Zhao could establish himself as the “acceptable face” of crypto, a section of financial markets that many still regard as the Wild West.

“Many people looked at Sam Bankman-Fried to be the leader of the industry and save it in the face of regulators,” says Charley Cooper, a former chief of staff at the Commodity Futures Trading Commission. “When [FTX] collapsed, everybody turned to Zhao as the potential future saviour for the industry.”

But while the prices of major cryptocurrencies like bitcoin stabilised in dollar terms after FTX’s collapse, Binance has struggled. Its size meant it became a clear target for regulators and lawmakers seeking to ensure the broader financial markets would never be contaminated by a crypto exchange that had become “too big to fail”. 

In the US alone, financial watchdogs have accused Binance of illegally serving American customers, inappropriately controlling clients’ assets, and disregarding compliance and anti-money laundering standards.

Binance’s size isn’t just a problem for regulators. Crypto evangelists fear its success is an existential problem for an industry that champions decentralised finance where no one actor or entity holds too much sway.

“Binance’s struggles underscore a fundamental challenge faced by the crypto industry,” says Charles Storry, head of growth at the DeFi project and on-chain index fund provider Phuture. “The tension between major centralised entities . . . versus the industry’s original ambition of a new form of finance built on the tenets of decentralisation, transparency and an equal playing field.” 

Binance said it believed “healthy competition” was good for the industry and it was focused on growing the industry “overall”.

But whether and how its future is resolved will help determine if crypto becomes a part of mainstream finance, or remains a niche industry beloved by those wishing to separate money from the apparatus of state.

Growth at all costs

In an internal text message sent in late 2017, shortly after the birth of his crypto exchange, Zhao issued a rallying call to his employees: “Everything you do should be aimed at increasing our market share,” he said. 

“Other things like profit, income, comfort, etc. come second. If you have two things you can do now, ask yourself, which one will be more helpful to our market share, and do that first,” he added. 

Binance said that “as with any start-up, the first priority was to expand the business as quickly as possible” but that “these days, we see Binance as a very small part of a much larger financial ecosystem”.

A Canadian citizen who was born in China, Zhao studied computer science and cut his teeth on trading software, including for the Tokyo Stock Exchange, before pivoting to crypto in 2013. In the years that followed, the man better known in crypto circles by the moniker “CZ” became a household name in the world of digital assets. 

Under his leadership Binance quickly became the world’s largest crypto exchange. By January 2018, only six months into its existence, Binance had a 26 per cent market share and within a year of its inception its workforce spanned at least 27 countries, according to internal company documents seen by the Financial Times.

Like many young tech companies, it had an aggressive growth culture. “We want to spend 2 per cent of time making decisions, and 98 per cent of time doing them,” Zhao said during an internal meeting in Binance’s Shanghai office a recording of which has been seen by the FT. “Our competitive advantage so far is because we do things, we execute, we get shit done. It’s all about getting shit done.” 

Working for a government agency is the only thing I can think of where you cannot really say where you’re working — at a financial institution, it never happens

An onboarding document, seen by the FT, reads: “If you just sit there waiting for someone else to come and tell you what needs to be done, you could be waiting for a long time. Actually, usually not too long, as someone is likely going to come and tell you to get off the team.”

Binance did not respond directly to questions about Zhao’s statement or the onboarding document, referring instead to a blog post about the company’s principles and culture.

Zhao built up a loyal following that defends him against “FUD”, industry parlance for “fear, uncertainty and doubt”. A key part of this following are the so-called Binance Angels, described by the company as “volunteers” who support the Binance community and advance the crypto cause.

A person familiar with the operation says Binance Angels are actually an integral part of the running of the company. “They would translate for us, set up local events, help us understand the laws, manage communications and help order local company merchandise,” the person adds. 

The company told the FT its “Angels” were passionate ambassadors that supported the Binance community in various ways.

Binance’s early years were also defined by the high-profile excesses that often characterise optimistic start-ups seeking to change the world. In the summer of 2018, Zhao accompanied every Binance employee at the time on a trip to Thailand to mark the company’s first year.

In footage of the trip seen by the FT, Zhao stood on a beach lined with yachts among roughly 100 Binance employees who unveiled a sign marking the milestone.

Binance said its size now precluded such events. “When the company was smaller, it was easier to do trips like this.”

Its rapid growth in the crypto scene was shrouded in corporate secrecy. In the summer of 2018, a security warning instructed employees to limit their social networks to first-degree acquaintances, turn off geotagging on electronic devices and avoid broadcasting personal information to uncontrolled audiences.

“Reserve your social media space for family and friends. Check that there are no suspicious people on your Facebook, Twitter, LinkedIn, and Instagram accounts,” the warning read.

Binance said it had made clear to staff that personal social media profiles created “a higher risk for targeted phishing and other social engineering attacks.”

He Yi, Binance’s lesser-known co-founder, once described the company in an internal text message as “the 007 organisation”. A Binance spokesperson said that “as with anything, context is everything”.

One former Binance employee says the company’s joining process included “a specific slide that told you that if you posted on social media that you were a Binance employee, you’d get fired”. The company denied this claim.

“Working for a government agency is the only thing I can think of where you cannot really say where you’re working — at a financial institution, it never happens,” the person adds. An onboarding document instructed those joining the company to “install a VPN on all devices, computers or phone”. Binance told the FT it considered security “critical” and VPNs add a layer of security for a mobile staff.

Regulators circle

Binance’s early and rapid growth was aided by the haze of regulatory uncertainty that surrounded the new phenomenon of cryptocurrency. Describing himself as “driven by freedom,” Zhao declared to a group of employees during the Shanghai meeting that he didn’t like “a lot of rules” and exploited a point of definitional controversy that remains at the epicentre of the crypto industry to this day. 

“What is a cryptocurrency? Is it a security, is it a commodity, is it something else?” he said during the same meeting. “I disregard a lot of the different country’s interpretations of that, even though some of them may be regarded as law.” 

Asked about these comments, a Binance spokesperson said the company recognises it “made mistakes” in its early days but that following heavy investment in talent, processes, and technology “we are a very different company today when it comes to compliance.”

The young crypto start-up ran into regulatory trouble just months after its inception when Beijing banned initial coin offerings, describing the issuance and sale of tokens as “unapproved and illegal public financing”. The move effectively ended any possibility of the exchange operating legally in the country. 

Binance then expanded into Japan, albeit without a licence from regulators there. Employees were instructed in an internal communications channel not to use a Binance email address when communicating with external entities in the country. 

The company says it has “taken steps to ensure the highest levels of compliance” in Japan and acquired a licensed exchange there in November.

Three years after Binance’s beach holiday in Thailand, the Thai Securities and Exchange Commission filed a criminal complaint against the exchange for allegedly operating a digital asset business there without a licence. Binance said a joint venture, Gulf Binance, has now been licensed and regulated in Thailand.

As Binance grew, so too did the list of regulators who clashed with crypto’s fastest-growing shop. In August 2021 the UK’s Financial Conduct Authority said it was “not capable” of properly supervising Binance after the company allegedly failed to respond to basic queries.

One month later, the Monetary Authority of Singapore placed Binance on an investor alert list, warning consumers the exchange was not regulated or licensed in the city-state. Regulators in the Netherlands also came after Binance, fining the exchange more than €3mn last year.

“We felt like rebels upending the financial system and getting chased out of countries,” says a former Binance employee. The company responded that while growing rapidly “we made some initial mis-steps which have now been rectified”.

Binance’s run-ins with financial watchdogs made it difficult for the company to establish a permanent base and Zhao often claimed the company had no formal head office.

But in May 2022, regulators in France allowed one of the exchange’s subsidiaries to act as a registered digital assets service provider. Zhao said the country would at least serve as its regional headquarters.

“During the time when I was going to the office in Paris, it was clear it was the most important office [for Binance],” says one former employee. “Zhao wasn’t really coming to the office but on a number of occasions he was in Paris . . . kind of marketing their office in Paris. They made it really obvious,” the person adds.

But in June this year, French police opened an investigation into the exchange over allegations it illegally advertised its services to consumers and did not carry out adequate checks to prevent money laundering. Binance says it operates legally in France and is co-operating with the authorities there.

Onslaught in America

Binance’s post-FTX honeymoon at the summit of the crypto industry did not last long. At the start of 2023, the Securities and Exchange Commission opposed Binance’s planned $1bn acquisition of the assets of bankrupt cryptocurrency lender Voyager. The deal was later abandoned.

In February, the New York Department of Financial Services ordered a halt to the issuance of BUSD, a Binance-branded crypto token designed to track the price of the US dollar, which once accounted for roughly two-fifths of Binance’s trading volume. 

In March, the Commodity Futures Trading Commission sued the crypto exchange, alleging it illegally accessed US customers and that much of the company’s reported trading volume and profitability came from “extensive solicitation of and access to” US customers.

In its lawsuit against the exchange, the CFTC alleged a Binance executive in 2020 said that certain customers, including some from Russia, were “here for crime”. An employee allegedly replied to their colleague: “We see the bad, but we close two eyes.” Binance previously described the lawsuit as “unexpected and disappointing”.

Three months later the Securities and Exchange Commission, which regulates stock and bond markets in the US, filed 13 civil charges against Binance-related companies, including its American arm Binance US, as well as Zhao himself.

Gary Gensler, the SEC chair, accused Binance of engaging in “an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law”.

Binance’s offshore trading platform said at the time that it was disappointed and disheartened by the SEC action, while its US affiliate called the suit “baseless”.

As official scrutiny of Binance has intensified, its share of the crypto spot market has fallen to 40 per cent, according to the latest data, after six consecutive months of decline.

The idea that the most scrutinised crypto company was going to be the saviour of a newly scrutinised industry was silly

Binance’s continuing regulatory struggles have also been reflected in the demands placed on its staff. Some feel the group’s gung-ho culture has been replaced by something more cut-throat. 

“We know that Binance is not for everyone,” the company responded. “We even wrote a blog about reasons not to join Binance. Culture fit is important.”

“Although they want to show Binance is a community . . . it’s not really a company where you feel respected or valued,” says a former employee. Another departed staffer says: “I was told I’d been let go, and immediately after that I received a message from human resources saying they were sending someone to pick up my laptop and phone.”

Binance said it disagreed strongly with the characterisation that “employees do not feel respected or valued” but added that it limited risk by obtaining company devices from employees who were leaving.

This summer, the company planned a round of job cuts impacting what was, at the time, its roughly 8,000-strong workforce. The exchange said the cuts were “not a case of right sizing”, but one individual familiar with the matter responded by saying “it doesn’t take a genius” to understand that market forces could prompt the company to refocus its resources.

Facing regulatory intervention and losing market share, a weakened Binance is no longer just a problem for Zhao. An entire sector that had craved a period of stability has instead got more turmoil. For Cooper, the former CFTC executive, this was not surprising.

“The idea that the most scrutinised crypto company was going to be the saviour of a newly scrutinised industry was silly,” he says.

“If you’re in this industry for the long game, and you’re trying to find the steady long-term players, you’ll find that Binance is anything but.”