In August, before it was completely clear that the US Department of Justice (DOJ) would bring charges against Binance, news leaked that federal prosecutors pursuing the case feared that an indictment could cause customers to They would panic and withdraw their funds en masse, which could lead to panic. in crypto markets, broader industry contagion or even a liquidity shortfall.
On Tuesday, the Department of Justice reached a “historic” settlement with the world’s largest stock exchange. The declared crimes are broad and the penalty is enormous. Binance will pay a $4.3 billion fine for violating money transmission laws and US sanctions, and its CEO Changpeng “CZ” Zhao, who founded the company in 2017 and built it into a giant, was forced to resign.
Withdrawals over the past day amounted to $566.8 million, according to the DefiLlama centralized exchange dashboard.
Customers who rushed to withdraw their money from FTX ruined that exchange because its traders fraudulently misappropriated the money. On the other hand, at this point, Binance appears to be healthy. Its latest “proof of reserves” report, an imperfect but voluntary certification of an exchange’s holdings, shows that the exchange holds $65 billion in crypto assets alone. DefiLlama estimates it at 68.4 billion dollars.
Additionally, Binance appears to have overcollateralization for many of the largest assets on its books, such as bitcoin (BTC), ether (ETH), tether (USDT), and others, meaning Binance’s net balances are more than what you owe to customers. In other words, if every Binance customer withdrew all the bitcoins they owned, the exchange would have bitcoins to spare.
Zhao’s loss will be felt. He was not the figurehead of the company, but rather its leader. He communicated with his fans, followers and users in figurative language, often being able to dismiss bad news with a tweet. Many times this year, when bad news kept coming, she tweeted a single number: “4.” That represented his four principles: ignore “FUD” (or fear, uncertainty and doubt) and stay positive.
“It is true that it was not easy to let go emotionally. But I know it’s right. I made mistakes and I must take responsibility. This is what is best for our community, Binance and me,” Zhao wrote on X/Twitter on Tuesday.
Zhao is personally on the hook for $200 million in civil and criminal penalties, which for an early cryptocurrency adopter whose net worth ranges from $17 million to the low-end deca-trillions is a small price to pay. to resolve charges from a coordinated investigation involving DOJ, CFTC, and two law enforcement departments under the Treasury Departments, FinCEN and OFAC.
Binance, no stranger to regulatory action, appears to have had a contingency plan in the works for some time and reacted quickly to its decapitation. Binance regional markets head Richard Teng, who was hired in 2021 and was rumored to be CZ’s successor, will take over as CEO. This rapid rise, already in the public consciousness, has done much to hinder the disorder, especially considering that Zhao could spend the next 18 months to 10 years in a US federal prison.
While Yi He, Zhao’s co-founder, alleged romantic partner and “chief customer service officer” (a self-defined role that summarizes the company’s “business, marketing and brand strategy,” according to his company bio), appears to be staying . Although Zhao will not be allowed any relationship with Binance for at least three years, under the government’s terms, he could act as an informal conduit between the company and its largest shareholder, Zhao.
In many ways, Binance came out on top. He has to pay a huge fine, yes, but it seems like he has money on his books to survive. Binance will also need to appoint an independent monitor and submit compliance reports to the US government. ConsenSys chief counsel Bill Hughes said this will be a boon to US criminal investigators:
“All Binance transaction records that exist today, which may very well date back to the beginning of the exchange, are there for the authorities to take. They will show how illicit payments flowed through the exchange. Law enforcement will have full access to an ocean of intelligence on illicit flows within the black box of that exchange to compare with the immutable record of transactions found on-chain.”
Binance may never end up in regulatory good graces, but paying restitution, complying, and ending a multi-year criminal investigation that hung like a Damocles sword over the exchange could allow it to turn the page. (And Zhao, who has essentially lived a peripatetic lifestyle since the exchange was expelled from China the same year it was founded, 2017, can finally take a breather.)
Perhaps now European countries, including France, the Netherlands and even tax haven Cyprus, which have declined to grant Binance a license to operate or opened their own regulatory investigations, will give the exchange a second chance. Binance, while forced to withdraw from several jurisdictions, has somehow grown over the past year while the rest of the industry retreated.
Binance is arguably one of the few companies that benefited from the collapse of its rival FTX, absorbing a global cryptocurrency trading customer base. In his first public announcement as CEO, Teng said the exchange has more than 150 million users and thousands of employees. The exchange also has divisions in almost every crypto vertical, maintains one of the most used DeFi chains, and made moves into AI.
Nothing is totally certain, but the exchange still has momentum. It also has other hurdles ahead, including a civil lawsuit filed by the U.S. Securities and Exchange Commission (SEC), alleging a series of financial violations. The company has also hemorrhaged executives and in July, after a round of layoffs, it was reported that the exchange could finally cut a third of its global workforce.
In October, the company’s US division, Binance.US, changed its terms of use so that users can no longer withdraw dollars directly from the platform, except through stablecoins. That same month, Binance added “a number of new regulated and licensed trust partners” to allow users to deposit and withdraw euros, after its former partner Paysafe stopped services for the exchange.
If these drawbacks affect customer experiences, they may be the only thing capable of killing sharing. Binance, in a sense, was beloved because he embodied the cowboy and outlaw mentality of cryptocurrencies. It is not clear what kind of psychological effect the outcome of the Justice Department’s investigation, the unprecedented fine or the possible imprisonment of the former CEO of the exchange will have on such a hearing.
It is also unclear whether the magnitude of the exchange’s crimes will tarnish its reputation, even among staunchest crypto-anarchists. “The Binance platform was facilitating some really horrible things, from terrorist financing to ransomware actions, child pornography and various scams and frauds,” a senior Treasury official told reporters.
Binance, it must be recognized, has accepted its mistakes. The company’s official statement repeated what he had said before, that the company “grew at an extremely rapid pace” and “made poor decisions along the way.”
For almost its entire existence, save for the last few months when Binance’s legal and public relations teams appeared to make a show that the exchange prioritized compliance, the exchange acted with extreme disregard for US and global regulations. Zhao once boasted that the exchange had no headquarters because Bitcoin does not. It opened and closed subsidiaries in well-known tax havens such as Bermuda (in 2018, it planned to develop a regulatory framework that did not work), Jersey (closed in 2020) and Malta (overthrown in 2021).
“Today, Binance takes responsibility for this past chapter,” the company’s statement continued. Maybe that’s all he can say: remain a going concern. Many questions remain: can a compatible Binance grow?
Will Binance finally find a home? And if so, will she then lose her place in the hearts of her clients?
