Can Binance survive a $4.3 billion fine and founder’s resignation? | CoinDesk JAPAN

In August, before it was revealed that the U.S. Department of Justice would indict Binance, federal prosecutors trying to build a case against Binance reported that the indictment caused customers to panic and withdraw their funds en masse. News broke that it could cause panic in the (cryptocurrency) market, spreading the effects to the wider industry, or leading to liquidity shortages.

On November 21, the Department of Justice reached a “historic” settlement with Binance, the world’s largest cryptocurrency exchange. The charges are wide-ranging and the fines are huge. Binance will pay a fine of $4.3 billion (approximately 645 billion yen, equivalent to 150 yen to the dollar) for violating the Money Transfer Act and US sanctions. CEO Changpeng Zhao was forced to resign.

According to DefiLlama’s centralized exchange dashboard, withdrawals amounted to $566.8 million in the past day.

In the case of FTX, the exchange collapsed due to customers rushing to withdraw their funds because the operator was illegally embezzling funds. On the other hand, Binance looks healthy at the moment.

The latest “Proof of Reserve” report, which provides incomplete but voluntary proof of an exchange’s holdings, shows that Binance holds $65 billion worth of crypto assets alone. ing. By the way, DefiLlama counts FTX’s holdings as worth $68.4 billion.

Furthermore, Binance appears to be overcollateralizing many of the top assets on its books, including Bitcoin (BTC), Ethereum (ETH), and Tether (USDT). In other words, Binance’s net balance exceeds its debt to customers. In other words, even if all Binance customers withdraw all their Bitcoins, there will still be Bitcoin left on the exchange.

Effects of a lack of leadership

The impact of Zhao’s absence will be significant. He wasn’t the head of the company, he was the leader. He communicated with fans, supporters, and users in figurative language and was often able to broadcast bad news in tweets.

Zhao tweeted the number “4” multiple times this year when the bad news continued. This represented his four principles, which meant ignoring FUD (Fear, Uncertainty and Doubt) and staying positive.

“Certainly, emotionally letting go was not easy. But I know it is the right thing to do. I made a mistake and must take responsibility. It’s best for me and for myself,” Zhao said on X (formerly Twitter) on the 21st.

Mr. Zhao will be personally liable for $200 million in civil and criminal penalties, but Mr. Zhao, an early adopter of crypto assets with a net worth of between $17 million and billions of dollars, will be liable for $200 million in civil and criminal penalties. Pay to resolve charges stemming from a coordinated investigation involving the Futures Trading Commission (CFTC) and two enforcement arms under the Treasury Department, the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) It’s a small price to pay.

Binance is no stranger to regulatory action and appears to have had contingency plans in place for some time, and was quick to respond to Zhao’s resignation.

Binance’s regional market head Richard Teng, who was hired in 2021 and was rumored to be Zhao’s successor, will become CEO. This quick promotion was already on the minds of many, but it would deter confusion, especially given that Mr. Zhao could spend the next 18 months to 10 years in an American federal prison. It was extremely helpful.

Meanwhile, Mr. Zhao’s co-founder and rumored lover, Yi, is “chief customer service officer” (a title he defines as encompassing the company’s “business, marketing and branding strategy,” according to his bio). It appears that Mr. Yi He will remain. Under terms from authorities, Mr. Zhao will not be allowed to be involved in Binance for at least three years, but Mr. He may serve as an informal conduit between Binance and Mr. Zhao, its largest shareholder.

#Binance do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation.
We would do better in compliance.
Keep building.

— Yi He (@heyibinance) November 21, 2023

Binance makes no excuses for misappropriating users’ funds or engaging in market manipulation.
We improve compliance.
Let’s continue development.

Fresh start

In many ways, Binance got away with a light punishment. Yes, they will have to pay a huge fine, but they appear to have enough money on their books to survive. Binance will also be required to appoint an independent monitor and submit a compliance report to the US government.

Bill Hughes, senior counsel and director of global regulatory affairs at blockchain developer ConsenSys, said this would be a huge boon for U.S. criminal law enforcement agencies.

“All existing Binance transaction records, which most likely date back to the exchange’s early days, are available to law enforcement, showing how fraudulent payments were made through the exchange. Law enforcement would have full access to the vast amount of information about illicit financial flows inside the exchange’s black boxes, which could be matched against immutable transaction records found on-chain. can do”

Binance will probably never become a favorite of regulators. But. By paying the fine, complying, and ending the years-long investigation that has loomed over the company like a constant threat, the company will be able to move forward on a new path (and Binance Mr. Zhao, who has lived a virtually nomadic life since being kicked out of China in 2017, the same year it was founded, can finally take a breather.)

European countries, including France, the Netherlands, and tax haven Cyprus, which have either refused to license Binance or launched their own investigations, will likely give Binance another chance in the future.

Binance has been required to exit several jurisdictions over the past year, and has grown in some ways even as others in the industry have retreated. Binance may be one of the few companies that benefited from the collapse of rival FTX, absorbing a global crypto trading customer base.

In his first public announcement as CEO, Teng said Binance boasts more than 150 million users and thousands of employees. Binance also operates divisions in almost every crypto asset space, controls one of the most used DeFi chains, and is expanding into the AI ​​space.

It is an honor and with the deepest humility that I step into the role of Binance’s new CEO.

We operate the world’s largest cryptocurrency exchange by volume. The trust placed on us by our 150m users and thousands of employees is a responsibility that I take seriously and hold…

— Richard Teng (@_RichardTeng) November 21, 2023

I am honored and deeply humbled to be the new CEO of Binance.
We operate the world’s largest cryptocurrency exchange by trading volume. I take seriously and value the trust our 150 million users and thousands of employees place in Binance.

There are no guarantees, but Binance still has momentum. The road ahead is bumpy, with the U.S. Securities and Exchange Commission (SEC) filing a civil suit for numerous financial violations. The company has also been laying off a number of executives, and in July it was reported that the company could ultimately cut a third of its workforce worldwide after implementing a series of layoffs. .

Will growth continue?

In October, Binance US, the company’s American arm, changed its terms of service so users could no longer withdraw dollars directly from the platform except through stablecoins. In the same month, Binance announced that it was launching “a number of new regulated and licensed fiat currencies” to allow users to deposit and withdraw euros after its former partner, payments company Paysafe, suspended its services to Binance. We welcomed a partner.

If such inconveniences affect the customer experience, it may be the only factor that can doom Binance. In some ways, Binance was beloved because it embodied the cowboy, outlaw spirit of crypto assets.

It’s unclear how the outcome of the Justice Department investigation, unprecedented fines, or possible jail time for the former CEO will have a psychological impact on that customer base.

It’s also unclear whether the magnitude of Binance’s sins will tarnish its reputation even among the most hardcore crypto anarchists.

“Binance’s platform was facilitating some truly horrific things, from terrorist financing to ransomware to child pornography to a variety of fraud and fraud,” a senior Treasury Department official told reporters.

The great thing about Binance is that it has admitted its mistakes. The company’s official statement reiterated what it has previously said is that it has “grown at an extremely rapid pace” and “made some poor decisions along the way.”

With the exception of the last few months, when Binance’s public relations and legal teams have touted its compliance priorities, the company has operated in flagrant disregard for U.S. and global regulations for almost its entire existence.

Mr. Zhao once boasted that since Bitcoin has no headquarters, Binance also has no headquarters. Binance has previously established subsidiaries in well-known tax havens such as Bermuda (planned to develop a regulatory framework in 2018 but failed), Jersey (closed in 2020), and Malta (expelled in 2021). They have opened and closed.

“Today, Binance takes responsibility for its past,” the company continued in a statement. This is probably the only thing that can be said for remaining a going concern. However, many questions remain.

Can Binance grow with compliance? Will Binance finally find a home? If so, will you lose customer loyalty?

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Twitter (processed by CoinDesk)
｜Original text: Is Binance Big Enough to Survive a $4.3B Fine and Founder CZ’s Ousting?