Text: Financial detective source: Lilly Holmes
When it comes to the most alluring places in the world, the cryptocurrency circle is one of them.
In early June, Binance and its founder, Changpeng Zhao, the world's largest cryptocurrency exchange, were sued by the SEC (Securities and Exchange Commission) for violating U.S. securities laws and suspected of 13 crimes including illegal transfer of customer funds, false transactions, and money laundering.
The SEC noted that the Binance US platform helps users hide their physical location and nationality through unregistered exchanges, allowing U.S. high-net-worth investors to trade without regulation, in an attempt to subvert "the control of regulators."
To make matters worse, Binance privately transferred billions of dollars of customer funds to a company called Merit Peak, which was actually controlled by Changpeng Zhao. In addition, cryptocurrencies are sold in a circular manner between a small number of accounts, exaggerating the actual trading volume, artificially inflating the price of cryptocurrencies, and misleading investors in order to profit from them.
As soon as the news came out, it triggered a strong panic in the crypto market, and Bitcoin plunged more than 7% at one point, falling below the $26,000 mark.
On June 5, Changpeng Zhao responded in a tweet: Our team is ready to ensure the stability of the system, including withdrawal and deposit operations, once we receive a complaint, we will respond, but we have not yet received it.
However, a dramatic scene happened, Changpeng Zhao, who has always been known for "highly protecting his whereabouts", because his whereabouts were erratic, and the SEC said that he did not know where others were when he sent legal documents to Zhao.
This style is indeed in line with the decentralized nature of cryptocurrencies, where the company has no headquarters and the founders do not have a fixed residence.
1
Founded for four years, became the richest Chinese man
Zhao Changpeng was born in Lianyungang, Jiangsu Province in 1977, his father was a professor at the University of Science and Technology of China, and when he was 12 years old, he immigrated to Vancouver, Canada with his parents, and then studied computer science at McGill University.
A wealthy but independent child, he worked at McDonald's and worked as a volleyball referee, which at the time was only $3.50 an hour.
After graduating from university in 1997, he joined the Tokyo Stock Exchange and then went to New York to develop futures trading software for Bloomberg, the world's largest financial information company, and worked as a management officer in New Jersey and Tokyo in less than 2 years.
In 2005, Changpeng Zhao returned to Shanghai to found Fusion News Information Technology Co., Ltd., focusing on the development of high-frequency trading systems for stock exchanges for online automated trading of stocks.
In 2013, at a gathering with friends, Changpeng Zhao first came into contact with Bitcoin, and since then he has opened the road to the currency circle.
In 2014, he sold his house in Shanghai and bought bitcoin, which then collapsed and Shanghai house prices doubled, but that didn't hold him back.
In the same year, Zhao Changpeng met Xu Xingxing, the founder of the exchange OKcoin, and then joined OKcoin without hesitation and became a technical director, and together with the "first sister of the currency circle" He Yi, the three were collectively known as the "Bitcoin Tiantuan", but due to some cultural and value conflicts, Zhao Changpeng left within a year, and poached He Yi by the way.
On June 24, 2017, Binance was officially established, raising $15 million in an initial coin offering, and in just half a year, Binance announced a profit of $200 million, killing Deutsche Bank, and a year later, the daily trading volume reached 60 billion yuan, becoming the world's largest cryptocurrency exchange.
In 2021, in the list of Chinese rich people released by Forbes, Changpeng Zhao topped the list with a value of 640 billion, and the scenery was unlimited for a while.
One day in the currency circle, one year in the world, Zhao Changpeng completed the 40 years of others in 4 years.
2
Heaven or hell
However, Binance's rapid rise has been accompanied by controversy, and its legitimacy has been in doubt.
In 2017, just 3 months after Binance was founded, China banned virtual transaction services such as Bitcoin, and Changpeng Zhao was forced to transfer all servers overseas and began a global wandering road.
After leaving China, Binance was expelled from Japan, the United Kingdom, the Netherlands, Canada and other countries.
In 2018, the Financial Services Agency suspended Binance's services in its territory on the grounds that Binance was not registered in Japan, was suspected of operating illegally, or caused losses to investors, and cooperated with the police to file criminal charges against Binance.
In January 2021, the United Kingdom introduced a policy that requires cryptocurrency-related industries to register with the FCA (Financial Conduct Authority) before conducting business, so that the agency can monitor whether companies have money laundering or terrorist financing, and strangely enough, Binance submitted an application to the FCA but then withdrew it, and not surprisingly, Binance was banned from any activities in the UK.
In April 2021, Binance was fined €3.4 million by the Dutch central bank and publicly warned for providing services without registering in the Netherlands.
This emerging monetary system, which is believed to kill traditional banks and provide excellent ground for money laundering, is destined to be seen as a flood beast by mainstream countries.
In desperation, Zhao Changpeng retreated to the second place, choosing Nigeria, Uganda, British Jersey, Southeast Asia and other countries with backward development but banknote capacity to solve everything, and finally found a shelter from the wind and rain.
In November 2021, the price of Bitcoin reached an all-time high of $68,928.9, and Changpeng Zhao's rising value also reached the peak of his life. But there are no assets that are physically supported, coming and going faster, and then Bitcoin has a cliff-like crash, and within half a year, Zhao Changpeng's value plummeted 89%, evaporating 570 billion yuan.
Although Changpeng Zhao created the myth of the currency circle, many of Binance's early history of prosperity are still despised by peers.
In the currency circle, male customers crush women in an overwhelming proportion, Binance one of the founders He Yi took this opportunity to sell female IP, once in the circle of friends open recruitment, the only standard "white skin beautiful long legs", the use of beautiful newcomers to blatant flirtation, in order to achieve the purpose of obtaining traffic and soliciting customers, which is one of the reasons for Binance's rapid development and growth.
At the heart of finance is credit. But here in Zhao Changpeng, the water spilled out can be recovered.
In 2018, a large number of Binance investor accounts were hacked, the currency in the account was inexplicably sold, users suffered heavy losses, Bitcoin fell by 10% in one hour, and the market value of $16 billion evaporated instantly.
Because it was caused by a technical vulnerability, it should be compensated by Binance, but Changpeng Zhao carried out a rollback process, that is, the data was restored, and the account was pushed forward according to the timeline to restore the account to the state before it was stolen, so that the user had no loss, and Changpeng Zhao did not have to lose money, which seemed to be the best of both worlds, but it seriously violated the spirit of the blockchain that cannot be tampered with.
At this time, the credit crisis between Changpeng Zhao and Binance began to crack.
3
Falling into a well, setting fire to himself
What really brought Changpeng Zhao's reputation to the bottom was the event that fueled and accelerated the demise of FTX.
FTX is the world's second-largest cryptocurrency exchange after Binance, founded by mysterious man Sam Bankman-Fried. Changpeng Zhao was one of the early investors in FTX.
In 2021, among Forbes' "11 richest people in the cryptocurrency industry," Sam ranked second with a value of $4.5 billion, behind Coinbase founder Brian Armstrong.
In November 2022, the US blockchain media Coindesk disclosed a report on the balance sheet of Alameda, a cryptocurrency hedge fund under Sam's name, which simply means that the asset composition is single, and most of the net assets are actually controlled by FTX itself and FTT (FTX token).
Just as the SEC accused Changpeng Zhao of misappropriating Binance's client funds to another company, FTX is likely to have this kind of left-handed insider trading. The point is that once the value of FTT and other tokens on the balance sheet falls, which will cause Alameda to become insolvent, then FTX's customer assets are likely to be used to fill this hole.
The crisis was salvageable, and Sam initially planned to borrow $1 billion from Wall Street investors.
Changpeng Zhao added a fire and posted on Twitter: FTX has huge financial loopholes and regulatory risks; We will sell all the FTT on the books.
The two tweets directly caused user panic, resulting in a run and sell-off wave in FTX, a large number of user withdrawals, and the value of FTT all the way down, after Alameda's continuous acquisitions and financing also triggered a domino effect at this time, and in less than a week, FTX's funding gap has widened to $6 billion, directly paralyzed.
In the end, FTX filed for bankruptcy protection in the United States, Sequoia, SoftBank, BlackRock and other well-known investment institutions lost their money, and the only beneficiary of this silent war may be Binance.
However, the FTX thunderstorm has seriously shaken people's confidence in the crypto industry, and coupled with the successive failures of US banks this year, which has led to the decoupling of some stablecoins anchored to fiat currencies, the overall environment of the cryptocurrency market is deteriorating.
After that, crypto exchanges will be subject to greater scrutiny, and the next step will be difficult.
Zhao Changpeng's fire eventually burned to his body.
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