After the fall of FTX, it seemed that the cryptocurrency world was almost completely in the hands of Binance – but a year later, the world’s largest crypto exchange was also in trouble.
The Binance empire is “trembling” under the threat of enforcement action from US authorities and is losing its top managers – at least 1,500 employees have left in the last 3 months as the company began to cut costs and prepare for a business downturn.
While Binance is still a major player in the crypto industry, the crypto exchange now processes about half of all cryptocurrency buy/sell transactions, up from 70% at the start of the year, according to Kaiko.
The fall of the largest crypto exchange has huge consequences for the industry – and although smaller companies will take its place, liquidity in the market could evaporate in the short term, leading to a sharp decline in the value of tokens.
One institutional trader told The Wall Street Journal that his company conducted emergency exercises to quickly withdraw its assets from Binance in the event of a crash.
Yi He, Binance co-founder and chief marketing officer, promised the company would overcome the challenges in a message to employees last month:
“Every battle is a win or die situation and the only thing that can defeat us is ourselves. We have won countless times and we need to do it this time too.”
Binance frequently invests in crypto and other projects, including X, formerly known as Twitter. Company co-founder Changpeng Zhao—or CZ, as he is known to X’s 8.6 million followers—is the most famous figure in the cryptocurrency world.
“You simply can’t quantify what would happen to the industry if Binance disappeared, given that it was responsible for so much innovation and growth,” said Anthony Georgiades, general partner at Innovating Capital.
The U.S. Department of Justice has conducted a multi-year investigation that could lead to criminal charges against Binance and Zhao and billions of dollars in fines, according to people with knowledge.
Changpeng Zhao. Photo: Bloomberg
Binance is also facing a Securities and Exchange Commission lawsuit that alleges the company and Zhao illegally operated in the US and misused customer funds. The cryptocurrency exchange has acknowledged past mistakes but says customers’ money is safe and it is committed to complying with regulators.
“We have worked tirelessly to not only learn from the lessons of the past, but also continue to invest in teams and systems to ensure user protection,” said a spokesperson for the crypto exchange.
Binance launched in China in 2017, although it claims to be headless and has employees scattered around the world. The global crypto exchange website is available to traders almost everywhere, but the situation is changing, particularly in a number of European countries.
Activity on the local US exchange Binance.US has virtually disappeared, and the CEO, chief legal officer and head of risk recently left the company. A few days before the dismissal of Binance.US CEO Brian Schroder, he said that revenue on the exchange had fallen by 70% since the beginning of the year.
Schroder told employees that Zhao must “resolve regulatory issues, put his .US stakes into a blind trust or sell his shares” for the US platform to continue growing. According to him, these steps will allow the company to unblock relations with banks and obtain a license. Zhao is the majority owner of Binance.US and the global exchange.
Binance and the Justice Department have been in negotiations for months, and there have been discussions within the cryptocurrency exchange about whether Zhao should resign, according to people familiar with the situation.
According to the WSJ, the turmoil at the company also hit employee morale.
“Some laid-off workers were given zero days notice of their dismissal. They simply couldn’t log in. Is this a respectful attitude towards them? Do you have 2 weeks to quit?” one anonymous employee asked Zhao in a general chat (nine others liked the message, but the question went unanswered).
The Justice Department also opened an investigation into Binance and possible violations of US sanctions against Russia and questioned the company’s chief compliance officer, Noah Perlman. Pressure from the department was one of the reasons for Zhao’s decision to curtail his business in the Russian Federation, once one of its most important markets.
Binance entered into an agreement to sell its entire Russian business to the CommEX crypto exchange, and they confidently stated that are not owned by Binance, but refused to disclose the names of the ownersbecause they “don’t want publicity”
Zhao publicly remained defiant:
“We are one community,” he wrote on X the day Russian executives left the company. “Keep building!”
But from his home in the United Arab Emirates (which does not have a reciprocal extradition treaty with the United States), Zhao brought in new lawyers to try the Justice Department case, according to people familiar with the situation.
Source: The Wall Street Journal
2023-09-29 13:23:04
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