Did Binance’s CZ Predict Its Own Downfall?

Five years ago, you could not trade in fiat currency on Binance, but the exchange was already gaining international attention with a high volume of trade among its competitors.

That's no mean feat in the cryptocurrency industry, even in 2018 with several well-established exchanges established and commanding loyal user bases. Critics question why the world needs another exchange, but Changpeng “CZ” Zhao is undeterred.

In June 2018, Cointelegraph conducted a one-on-one interview with CZ about the meteoric growth of the global exchange. At the time, Binance only supported crypto-to-crypto transactions, but the 50% fee discount set by its native BNB (BNB) token was a draw for savvy traders.

Half a decade later, things are very different. Binance has agreed to a $4.3 billion settlement with the United States government over civil enforcement actions. A US civil case alleges that Binance's policies allowed criminals involved in illegal activities to move “stolen funds” through the platform.

The ruling led to Zhao's dismissal as CEO amid private charges against Binance's founder for violating bank secrecy laws. Zhao pleaded guilty and was released on $175 million bail.

In the year Reflecting on that conversation in 2018, Zhao seems well aware of Binance's proverbial growing target as its trading volume outpaces its competitors.

Related: Binance's $3.9B USDT Activity Gets Community Attention Amid DOJ Settlement Claims

The exchange was scrutinized on the accuracy of the trading volume, a point Zhao disputed. He said that Binance accurately records trading volumes, while other exchanges “double-report” trade purchases and sales to give inflated figures to attract more users.

“Being first sometimes creates other problems, especially with regulators. The supervisors like to talk to the number one person. We always try so hard not to be number one, but other people are trying so hard to be number one.

Looking aside, the burgeoning Zhao Exchange was gaining steam. A modest $15 million Initial Coin Offering (ICO) was the foundation to get Binance off the ground.

Zhao spoke passionately about the ICO's role in laying the foundation for the exchange's growth:

« ICO definitely helped us a lot. I can't stress how much it helped us. I think it helped us on the order of 10 and 200x.

If founder Binance had raised the money through normal capital rounds, it would have been much slower. Some 25,000 users have registered at the ICO stage and become “investors, coin holders and users,” according to Zhao.

Binance's $15 million ICO turned into a company valued at $60 billion when Zhao was forced to hand over the reins to incoming CEO Richard Teng.

The outgoing CEO's words five years ago proved prophetic. Binance has faced regulatory scrutiny in several jurisdictions due to its aggressive expansion efforts.

This resulted in a major enforcement action in the United States and a subsequent multi-million dollar settlement. Binance has faced more local challenges in other countries, pulling out of the Netherlands after failing to meet regulatory compliance.

The exchange has similarly found greener pastures and given the UAE a new foundation to continue its operations. CZ lives in the country and is expected to return there for some time in 2024 before returning to the US for trial.

Unfortunately, Coinbase CEO Brian Armstrong took to X (formerly Twitter) to highlight that his approach to measuring his own exchange to meet regulatory standards has avoided the current situation Binance finds itself in.

In the year Since founding Coinbase in 2012, we have taken a long-term view. I knew we needed to embrace compliance to be a generational company that stood the test of time. We got the license, hired compliance and legal teams, and made it clear that our brand is about trust…

— Brian Armstrong ️ (@brian_armstrong) November 21, 2023

“This means we cannot always move as quickly as others. Taking a compliant approach is more difficult and expensive. When it's illegal, customers can't launch every product they want. But it's the right approach because we believe in the rule of law,” Armstrong said.

Armstrong's take is indicative of the cryptocurrency space as a whole. Some push the boundaries while others take more cautious steps. This does not necessarily exempt the latter from scrutiny, and Coinbase itself is still in its own legal battle with the US Securities and Exchange Commission over alleged securities violations.

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