Key Points:
- Binance’s struggle amid regulatory investigations and lawsuits.
- Implications for the broader cryptocurrency industry.
- CEO Changpeng Zhao’s controversial role and the company’s response.
Once, after FTX’s crash, the cryptocurrency realm appeared to be under the dominion of the giant exchange, Binance. However, less than a year later, it’s Binance that finds itself in distress.
Facing potential regulatory actions from U.S. authorities, Binance’s empire is trembling. In the past three months, over a dozen top-level executives have departed, and the exchange has slashed its workforce by at least 1,500 employees this year to reduce costs and brace for declining business. While Binance still wields significant influence in the crypto sphere, its dominance is waning.
Data from Kaiko reveals that Binance now manages approximately half of all cryptocurrency trades, down from about 70% at the beginning of the year.
The fate of Binance holds enormous implications for the cryptocurrency industry, given its size. Many industry insiders and observers suggest that if Binance were to collapse, other exchanges would step in to fill the void. However, in the short term, market liquidity could vanish, causing token prices to plummet.
An institutional trader shared with The Wall Street Journal that their firm has conducted contingency plans to swiftly withdraw assets from Binance in case of a meltdown.
Yi He, Binance’s co-founder and chief marketing officer, expressed determination to overcome these challenges in a message to Binance staff last month. She wrote, “Every battle is a do-or-die situation, and the only thing that can defeat us is ourselves. We have won countless times, and we need to win this time as well.”
Binance is a frequent investor in third-party cryptocurrency projects and extends its reach beyond crypto, having invested in companies like X, formerly known as Twitter. Binance’s co-founder Changpeng Zhao, known as CZ to his 8.6 million X followers, is one of the most recognizable figures in the crypto world.
The U.S. Justice Department has been conducting a lengthy investigation that may lead to criminal charges against Binance and Zhao, as well as substantial fines, according to sources familiar with the probe.
Additionally, Binance is facing a lawsuit from the Securities and Exchange Commission (SEC), which alleges illegal operations in the U.S. and misappropriation of customer funds. While acknowledging past mistakes, Binance maintains that customer funds are secure, and it remains committed to compliance.
Binance, founded in China in 2017 but claiming to be headquartered nowhere, with a globally dispersed staff, has seen its global accessibility diminish as it has been banned in many countries. In Europe, more nations are closing their doors to the exchange.
In the U.S., activity on its local platform, Binance.US, has significantly dwindled. Key executives, including the CEO, legal chief, and risk head, have recently departed.
In a virtual Binance.US meeting just before his departure, Binance.US CEO Brian Shroder revealed that the exchange’s revenue had declined by 70% year-to-date, according to a presentation seen by the Journal. Executives were visibly concerned.
Shroder informed employees that for the U.S. platform to continue its growth, Zhao needed to address his regulatory issues, place his U.S. holdings in a blind trust, or sell his shares. These actions would potentially unblock banking relationships and facilitate licensing. Zhao holds the majority ownership of both Binance.US and the global exchange.
Discussions between Binance and the DOJ have been ongoing for months, and within Binance, there have been talks about whether Zhao should step down.
Zhao’s insistence on remaining at the helm has frustrated some executives who believe his departure could enhance the company’s chances of survival.
The turmoil within the company has also dampened employee morale. Employees confronted Zhao during a summer meeting following the layoffs, expressing criticism.
A further setback for Binance occurred in late August when The Journal reported on Binance customers’ use of sanctioned Russian banks. The DOJ has been investigating Binance in connection with potential violations of U.S. sanctions on Russia.
Following The Journal’s report, the DOJ inquired about the bank usage, and Binance’s chief compliance officer, Noah Perlman, met with department officials to address their concerns. Pressure from the DOJ partly contributed to Zhao’s decision to wind down Binance’s operations in Russia, which was once a vital market. Binance subsequently barred customers from using sanctioned banks and ousted the executives overseeing its Russia business. The company also considered a complete withdrawal from Russia.
Zhao publicly maintained his defiance, stating, “We are one community,” on the day the Russia executives departed. However, behind closed doors, he has been bringing in new lawyers to handle the DOJ case, as reported by sources. Zhao has also remained in his home in the United Arab Emirates, a jurisdiction without a mutual extradition treaty with the U.S.
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