The frenzy fades, and the profiteering ends.
Text丨Cheng Manqi
Editor丨Song Wei
After an eight-month legal tug-of-war with U.S. regulators, Changpeng Zhao pleaded guilty and stepped down as CEO of Binance on November 21, 2023. The king of cryptocurrencies has left the fastest-growing startup in history that he founded.
Taking over as Binance's CEO is Richard Teng, who joined in 2021. He has worked in financial regulators in Singapore and Abu Dhabi.
Shortly after taking his tenure, LatePost sat down with Richard Teng to discuss the market's concerns, including the safety and security of Binance users, compliance progress, and the changing crypto trading landscape and Binance's position as a result of a more compliant market as a whole.
Founded in July 2017, Binance became the world's largest cryptocurrency exchange in just 165 days and remains so to this day, with more than 170 million registered users today.
Even in 2022, when trading volumes have fallen, Binance's revenue is around $12 billion, according to data firm CryptoQuant. At this time, Binance had just been founded for 5 and a half years. It took 9 years for Google to get similar revenue, 10 years for Meta, and 12 years for Amazon.
Many industries have gone through the process of growing from brutality to gradual regulation, but the regulation of the cryptocurrency industry has come more dramatically and violently.
The speed of its rise caught people off guard: when Binance was founded, the global crypto market capitalization was less than $90 billion, and by the end of 2021 it had grown to $2.86 trillion, more than 5% of the total market capitalization of US stocks and 20% of the total market capitalization of A-shares over the same period.
In March and June 2023, the U.S. Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) sued Binance and Changpeng Zhao, respectively.
Changpeng Zhao's Nov. 21 guilty plea completes a partial settlement with the lawsuit. The $4.3 billion fine associated with the settlement is close to the $5 billion fine Goldman Sachs paid to governments in the United States and other countries in 2020.
In the eyes of regulators in various countries, cryptocurrencies are no longer emerging marginal areas, but big guys that need to be taken seriously.
From Changpeng Zhao to Richard Teng, from entrepreneurs pioneering in new industries to financial elites with rich regulatory experience, the CEO change of Binance is a landmark event in the cryptocurrency space towards standardization.
U.S. Treasury Secretary Janet Yellen, who attended the Binance settlement conference, said that Binance has ignored legal responsibilities in pursuit of profit and allowed money to flow to terrorists, cybercriminals and child abusers.
Binance's challenge at the moment is a strengthened version of a group of fast-growing companies:
When the goal-oriented, rule-ignoring approach is no longer a tool for growth, or even a liability, can an organization break free from the inertia shaped by past victories and survive in the new phase?
Changpeng Zhao pleaded guilty, but Binance's troubles are not over
Changpeng Zhao's November 21 guilty plea reached a settlement with multiple U.S. regulators, after the CFTC and other authorities accused Changpeng Zhao and Binance of failing to implement anti-money laundering policies, and accused Changpeng Zhao and Binance of sending money without a license and violating U.S. sanctions.
The full settlement conditions are:
- Binance paid $4.3 billion in fines to the U.S. government ($2.5 billion in final payments plus $1.8 billion in criminal fines).
- The U.S. Department of the Treasury will select individuals from an independent third party recommended by Binance to monitor Binance for a period of five years to implement the anti-money laundering and anti-sanctions provisions of the settlement agreement.
- Changpeng Zhao is not allowed to participate in any activities of Binance for three years after the official start of the designated supervision.
- Changpeng Zhao personally paid a $50 million fine.
- Changpeng Zhao could face up to 18 months in prison.
Binance's troubles aren't over yet, and the SEC's lawsuit against Binance and Changpeng Zhao is still ongoing.
The SEC charged Binance and Changpeng Zhao with operating illegally in the United States, violating U.S. investor protection laws by providing unregistered high-risk leveraged investment products to ordinary U.S. clients, and failing to properly segregate client funds by allegedly transferring billions of dollars of client funds to Merit Peak Limited, another company controlled by Changpeng Zhao.
Richard Teng told LatePost that reconciliation is a good thing: admitting a mistake proves that Binance is a responsible financial company.
He stressed that after such a rigorous investigation, there was no mention in the settlement of any misappropriation of customer funds by Binance, nor did it accuse Binance of market manipulation.
"We always put the safety and security of our clients' funds first, and client funds are always held and protected at a 1:1 ratio. Richard Teng said that Binance will never misappropriate user assets.
One of the arrangements in the settlement is that the U.S. government will appoint someone to oversee Binance for five years. This worries some users.
Binance's response: Binance users' private data is always protected, and whether it is the United States or other governments around the world, Binance will only cooperate when it issues a legitimate law enforcement request or court enforcement order and the request is reasonable, which is no different from in the past.
Richard Teng sees the U.S. government's close scrutiny of Binance in the future as an opportunity to engage with regulators and give them a better understanding of what crypto is all about: "All the institutions involved in this settlement will have a real understanding of what we and the industry are doing. Time will tell how this might affect policy. I think as the absolute leader in the market, we have the opportunity to be the standard that everyone has to meet. ”
For example, he said that money laundering in the crypto world actually accounts for only a tiny fraction of global money laundering, and data from FBI (Federal Bureau of Investigation) service provider Chainalysis, a cryptocurrency tracking agency, shows that in 2021, only 0.15% of transactions completed through crypto assets were related to illegal activities, and fiat transactions are actually more difficult to trace.
"It is our pleasure to help regulators around the world better understand the nature of cryptocurrencies. Richard Teng said.
In the short term, the settlement has increased Binance's regulatory uncertainty to a certain extent.
The SEC said the settlement strengthens and corroborates the SEC's allegations against Binance and demonstrates that Binance is well aware that it operates in the United States, serves American customers and leverages U.S. infrastructure for transactions.
The SEC's accusations against Binance and Changpeng Zhao also hit Binance's bottom line even more, saying that Binance failed to properly manage customer funds.
FTX, once the world's second-largest cryptocurrency exchange, was indicted by the U.S. government in early 2023 for misappropriating customer funds, and FTX founder Sam Bankman-Fried (SBF) was convicted of the crime and faces up to 110 years in prison.
The lawsuit comes at a time when Binance's dominant position in the cryptocurrency trading competition is waning.
Since 2023, Binance has laid off at least 1,500 employees and seen several senior executives leave, including the CEO, head of legal and head of risk at the exchange Binance.US, which Binance has built with US partners.
According to the Wall Street Journal, by September 2023, Binance.US revenue had fallen by 70% since 2023.
In the same month, Binance announced its withdrawal from the Russian market under pressure from the U.S. Department of Justice. Russia used to account for nearly 7% of Binance's traffic. On November 15, 2023, Binance has officially stopped Russian ruble deposits.
From January 2023 to January 2024, Binance's spot trading market share dropped from 62% to 44%, according to cryptocurrency data provider Kaiko.
This is not entirely due to judicial issues, and Binance's share drop in March last year was mainly due to the fact that it discontinued its offer with zero transaction fees.
According to Kaiko data, Binance's share of spot trading volume on centralized exchanges has declined since March 2023, but there has been no significant fluctuation before and after Changpeng Zhao reached a settlement with multiple U.S. departments.
Binance is still the world's largest cryptocurrency exchange, but it is losing its dominance.
A new CEO who is very different, juggling compliance and growth
At a time when share is declining and growth is stalling, Binance's new CEO is more like a man who puts his brakes on the brakes than on the accelerator.
Richard Teng is now 52 years old, and his athletic Xi over the years has kept him lean and much younger than his actual age.
Born in Singapore, the financial hub of Southeast Asia, he has a proven track record in finance before joining Binance: after a few years as an auditor at PricewaterhouseCoopers, he joined the Monetary Authority of Singapore in 1994, worked his way up to the position of Chief Regulatory Officer for 13 years, moved to the Singapore Exchange in 2010 as Chief Regulatory Officer, and in 2015, he became CEO of the Financial Services Regulatory Authority for Global Markets in Abu Dhabi, UAE.
币安新 CEO Richard Teng。 图片来源：IQ.wiki。
Among financial regulators, Richard Teng is an enlightened faction of cryptocurrency.
He told LatePost that at a financial summit in the United States in 2017, he listened to the speeches of several cryptocurrency practitioners in detail and began to see that cryptocurrencies are the future of the financial industry.
At that time, he believed that cryptocurrencies must be compliant when they go to the masses, so as to increase investor confidence, allow more institutional investors to participate, and bring new funds and new products. Since then, he has led the Abu Dhabi Financial Services Authority as one of the first institutions in the world to research and develop a regulatory approach to cryptocurrencies.
Richard Teng joined Binance in 2021 after a long chat with Changpeng Zhao, and Changpeng Zhao's awareness of the need to move towards compliance was an important reason for Richard Teng.
Among the early cryptocurrency practitioners when anarchism was prevalent, Changpeng Zhao himself was a "centrist".
He told LatePost more than two years ago that he couldn't imagine a society without the government and the police, saying that compliance is important, and that the industry needs regulation and a real regulatory case (and now Binance does contribute a regulatory case).
In the crypto world as a whole, Richard Teng is clearly different, if not the opposite, from Changpeng Zhao and the last generation of crypto tycoons who rose up in the same era.
Changpeng Zhao is a risk-taking entrepreneur and a pragmatic person who flexibly chooses the means to achieve his goals.
After contacting and recognizing Bitcoin in 2014, Changpeng Zhao, who was originally doing trading procedures in the traditional financial industry, sold his house in Shanghai and exchanged it all for Bitcoin. However, he does not pay attention to the evaluation dimensions in the cryptocurrency circle, such as "centralization or decentralization" and "whether the belief in Bitcoin is firm or wavering". He judged many things by whether they were reasonable, beneficial, and necessary.
Binance founder Changpeng Zhao. (Image source: CNBC)
Changpeng Zhao has a pragmatic attitude. He once told "LatePost" that it is "not right" to start doing things after all the rules are set, and the rules are all made.
Prior to joining Binance, Richard Teng had worked in mainstream financial institutions, where he had a good understanding of the regulator's mindset and way of doing things, and his professional Xi made him pay attention to rules and procedures.
Richard Teng has to juggle compliance and growth next, and he sees two things as alignment: "Compliance leads to more user confidence, and more mainstream institutional investors and products come in. ”
Richard Teng cited Binance's compliance efforts, emphasizing that it didn't just start today.
Binance has been attracting senior talent with financial compliance backgrounds in recent years, including Richard Teng, Chief Compliance Officer Noah Perlman, who joined in early 2023 and served as Global Head of Financial Crime at Morgan Stanley, and Kristen Hecht, Deputy Compliance Officer and Global Money Laundering Reporting Officer, who previously worked at HSBC and Meta as Chief Compliance Officer for Meta's crypto wallet Novi. According to Richard Teng, Binance has assembled a compliance team of more than 200 people with professional licenses.
Binance continues to optimize its anti-money laundering mechanism and is one of the first exchanges to mandate a KYC process for all users outside of the United States. Binance has a suite of technical tools to enforce compliance policies, including real-time monitoring, spotting suspicious or offending on-chain transactions, identifying a trader's criminal history, links to terrorism, and being on sanctions lists. From January to mid-November 2023, Binance has processed more than 52,000 requests for law enforcement assistance from law enforcement officials around the world, and that number also exceeded 50,000 in 2022.
At the same time, Binance also launched the cryptocurrency industry's first "Global Enforcement Training Program" to organize seminars for regulators in various countries, with more than 70 sessions held in 2022 and more than 120 in 2023.
Richard Teng said that Binance has filed in 18 different countries and regions: "No other exchange is regulated in so many countries like we have. ”
One question that Binance's management needs to decide is how far to implement compliance awareness in the minutiae of its operations.
Even in the troubled year of 2023, Binance is still launching new customer acquisition programs such as rebates, that is, encouraging old users to invite new users to sign up. Binance restricts the scope of participants based on IP addresses. However, in the face of rebate incentives, many users will find ways to circumvent the restrictions. Binance needs to scrutinize user identities and qualifications more rigorously.
Richard Teng will also lead Binance's continued growth in a new environment where the entire market is moving towards compliance.
The biggest positive for the crypto market today is a new compliant product: spot Bitcoin ETFs.
ETFs are index fund products that can be traded on general stock exchanges, and are launched by regular fund companies. A spot bitcoin ETF is an index fund that tracks the price of bitcoin.
On October 16, 2023, Bitcoin jumped from $27,000 to $30,000 on market rumors that the SEC had approved the listing of asset management giant BlackRock's spot Bitcoin ETF.
The news was later confirmed to be misinformation, but Bitcoin still rose all the way to $44,000, up about 170% from the beginning of the year and much higher than the Nasdaq 100's gain of about 55% over the same period.
This is not all good news for exchanges such as Binance.
Binance currently maintains the lowest transaction fee rate in the industry, with a fee of 0.1% per transaction for regular users, and even more benefits for VIP users.
According to Eric Balchunas, an analyst at Bloomberg ETF, Bitcoin ETF trading fees could be as low as 0.01%. He believes that the spot bitcoin ETF, once approved, will attract a large number of retail investors to buy directly, impacting the exchange's commission income.
The crypto exchange market is also becoming more crowded.
The Hong Kong government began issuing cryptocurrency exchange licenses in 2023, attracting applications from companies such as Futu. Hong Kong has become a testing ground for many online brokerages who are interested in going overseas to enter the cryptocurrency space.
An online brokerage company that is applying for a Hong Kong license told LatePost that after interviewing former employees of a number of cryptocurrency exchanges, they found that Binance's procedures and structure are indeed relatively strong, and many of the core personnel in the early days were "first-line foreign investment banks who do core trading risk control and clean computing systems".
At the same time, the brokerage believes that there is no stuck point in their trading system: they have mastered the ability and experience of directly serving a large number of retail investors, handling high-concurrency transactions and building complex derivatives; and they have experienced real high-intensity competition; the new work is to do a good job in on-chain services, virtual asset custody and wallet management and other parts that Internet brokerages are not originally involved in.
Faced with the question of how to deal with more competition in the future and whether Binance can continue to maintain its absolute lead, Richard Teng said that first of all, the industry is still in its early stages, and the global cryptocurrency only penetrates 5% of the population, and there is still a lot of room for the future: "Binance has always been thinking about how to expand the market, not compete in a limited market. ”
At the same time, he mentioned that the blockchain market operates 24 hours a day, and Binance has mastered the technology to maintain the long-term stable operation of the system in such high-intensity transactions for 6 years, which is Binance's advantage.
Changpeng Zhao's "legacy" is the world's largest market share, strong financial resources and a large user base, while Richard Teng has to deal with a new environment of stronger regulation, more diverse competitors and less room for profiteering. This requires a new set of practices within a framework of strict compliance.
In the nearly 2 months since Changpeng Zhao stepped down, Binance has stabilized its market share, daily trading volume and open interest, and the outflow of funds has been lower than expected.
Doubts surrounding all the "abdication" startups also hang over Binance: to what extent will the new CEO stick to his ideas and principles?
At the beginning of 2023, Changpeng Zhao posted a twitter saying that he would spend more time focusing on fewer things in 2023:1. Educate. 2. Compliance. 3. Products and Services. 4. Ignore fake news and slander.
He pinned the message to his more than 8 million followers to reinforce the impression of the "4" symbol.
Richard Teng is now creating his own symbol.
At the beginning of December 2023, after attending his first user event as the new CEO of Binance, he was invited to pose for a photo with a "4" gesture, but he ended up posing with a "3", which represents his 3 core tasks as a CEO:1. Always user-centric;2. Partnering with global regulators to uphold industry standards;3. Grow Web 3 with your partners.
In a Twitter post of the photo, he said: "I need my own stuff. ”
Richard Teng 与赵长鹏的 twitter。
题图来源：Pexels，由 Worldspectrum 拍摄上传。