The end of CZ era at Binance may be the most magnificent 6 years for Chinese entrepreneurship.

The End of CZ's Era at Binance A Magnificent 6 Years for Chinese Entrepreneurship

Source: Web3 Frontier

$4.3 billion in fines, the largest fine amount in the history of Chinese entrepreneurship, bar none.

The only comparison that can be made with this amount is the 18.2 billion yuan fine against Alibaba two years ago, which represents “only” 65% of the world’s largest cryptocurrency exchange, Binance. Even when compared to global internet giants, the $4.3 billion fine ranks among the top.

From six years ago, when Zhao Changpeng introduced Binance in a video in front of his Shanghai company, to using the $4.3 billion fine as a condition for his resignation and the continuation of Binance operations, the founder of Binance accomplished all of this in just six years. With the support of the cryptocurrency boom, Binance has become the world’s largest cryptocurrency exchange platform with 150 million users and thousands of employees worldwide, making it one of the most successful companies in international expansion.

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This will also undoubtedly be a week recorded in the history of technology and the internet, with two of the most vibrant and influential companies in the AI and Crypto sectors, OpenAI and Binance, having their founders resign for different reasons.

The six years of the CZ era were also six years of booming crypto development and wealth creation, and Binance played an essential role, especially in instilling industry confidence during bear markets.

Now that regulations are being enforced, regardless of what happens to Binance in the future, we still want to record Binance’s six years, highlighting the choices made correctly by CZ and co-founder He Yi at the right time. In the background of the primary bull market wave of Bitcoin, the convergence of favorable conditions, this may be the most remarkable six years in Chinese entrepreneurship.

Screenshot of CZ’s early entrepreneurial video

The “Crypto Trinity” and the Birth of Binance

In 2014, Zhao Changpeng was just a Canadian tech returnee working as the CTO of the cryptocurrency market website Blockchain.info. One time, He Yi was a guest speaker at an event in Hangzhou for OKCoin, and CZ was also present. After listening to CZ’s speech, He Yi admired his talent and asked for his WeChat ID after the event.

Later, He Yi wanted to advertise for OKCoin on Blockchain.info and approached CZ for a discount. But CZ told He Yi, “We don’t offer discounts on our ads.” This rejection made He Yi even more impressed with CZ. He Yi believed that he didn’t let personal feelings affect his decision-making and showed a high level of professionalism. He then introduced CZ to Xu Mingxing and brought him on board OKCoin.

As soon as CZ joined the company, he did an excellent job. Besides overseeing the infrastructure, custody, and security of on-chain transactions, CZ managed the development of all products. Due to his fluency in English, CZ was also responsible for promoting the overseas market. That’s how the “Crypto Trinity,” which resonated throughout the crypto industry in 2014, was formed.

“Cryptocurrency Holy Trinity” Featured in High-end Magazine “Fashion Bazaar”

Of course, now it seems that this trinity is not as “holy” as it once was. In the startup world, there can only be one leader, and CZ and Xu Mingxing both have technical backgrounds, often resulting in differences due to decision-making logic and cultural backgrounds.

In late 2014, CZ signed an agreement with his former employer, Blockchain.info, where OKCoin was responsible for operating the Bitcoin.com domain for 5 years, with all advertising revenue going to OKCoin. However, due to poor operational results, OKCoin wanted to terminate the partnership early.

However, Roger Ver, also known as “Bitcoin Jesus,” the owner of Bitcoin.com, believed that OKCoin should pay monthly compensation. This led to an ongoing economic dispute between the two parties for several months.

To Xu Mingxing’s surprise, CZ took a strong stance on Roger Ver’s side during this dispute, accusing OKCoin of violating professional ethics, forging his signature for bank transfers, and other issues. Soon after, OKCoin immediately issued a statement accusing CZ of not only forging contracts but also fabricating lies to attack OKCoin.

Ultimately, this war of words ended with OKCoin firing CZ. And as the person who recommended CZ to the company, He Yi found himself caught in the middle of this debate. In the second half of 2015, He Yi quietly bid farewell to OKCoin.

After leaving OKCoin, He Yi chose to join a technology company that had a market value of 20 billion RMB at the time. In June 2017, CZ officially established Binance. In July 2017, Binance launched its own platform token, BNB, with an initial offering price of 1 RMB. However, shortly after its launch, BNB’s price fell below the offering price, with one BNB being worth only 0.5 RMB. Binance was heavily criticized at the time, and He Yi later recalled that it was the most stressful period for CZ, as he lost 10 kilograms in just three weeks.

Two months after Binance was established, He Yi decided to bid farewell to the technology company and start from scratch, working as CMO with CZ to build Binance. After the news of He Yi joining Binance was announced, the price of BNB skyrocketed and the trading volume of BNB and the newly listed BTM token on the platform immediately surged, ranking among the top 10 in the world in trading volume.

He Yi also brought his experience in operating livestreaming platforms to Binance. By giving away cryptocurrencies and luxury cars during livestreams, he was able to attract a significant amount of traffic to Binance. On August 22nd, Binance held a livestream featuring Sun Yuchen, where they talked about the TRON project. During the livestream, they initiated a TRON token sale, and within just 53 seconds, they sold 500 million TRON tokens, solidifying TRON as the “ICO first project” of the second half of 2017.

On August 25th, Binance signed an investment memorandum of understanding with Sequoia China. The memorandum outlined that Sequoia China would invest approximately 60 million RMB in Binance’s Series A funding, accounting for 10.7% of the shares. Additionally, Sequoia China agreed to provide a bridge loan of approximately 30 million RMB to Binance’s Japanese subsidiary. Binance’s valuation then reached 500 million RMB.

The 94 Crisis: Binance Completes the “Overtaking on a Bend”

Just as Binance was flourishing, the arrival of the “94” crisis poured cold water on the entire cryptocurrency industry, including Binance. On September 4, 2017, the government launched a heavy blow against the chaos in the cryptocurrency industry, declaring a halt to all token issuance and fundraising activities, including ICOs. As the news broke, Bitcoin plunged, and everyone believed that cryptocurrencies were doomed.

However, for Binance, the “94” crisis presented a rare opportunity for a “super-overtaking.” Binance had always focused on spot trading, with its servers registered overseas and its CEO CZ being a foreigner. Taking an international route seemed like the natural choice: “Since we can’t operate in China for now, we decided to withdraw from the Chinese market and focus on international business.”

What impressed many investors at that time was Binance’s “market price refund” to Chinese investors.

According to the regulations, if the issue price was one dollar, the refund would only be one dollar, returning the principal to the investors. However, Binance decided to refund based on the market price of BNB, which had experienced a surge and was still around 6 yuan after the “94” crisis. Many projects also involved ETH, and Binance refunded based on the market price of ETH, compensating a significant amount of money. Although Binance suffered losses in this wave, it ultimately gained the trust of the industry.

Subsequently, Binance promoted itself on social media while simultaneously launching in Japan, filling the void left by domestic trading platforms. OKCoin, Huobi, and many other domestic users flocked to Binance, and Binance once again surged ahead, soaring to new heights.

On December 15, 2017, Binance, which had been established for half a year, announced its operational data: top three global trading volume, 24-hour trading volume surpassing 2.1 billion USD, and a 100% increase in BNB market value. On December 18, Binance’s daily trading volume exceeded 3 billion USD, making it the number one cryptocurrency exchange worldwide. On the 19th, the number of Binance users exceeded 2 million and then skyrocketed to 5 million in less than a month.

On January 10, 2018, Binance’s trading volume exceeded 10 billion USD; and in February, CZ appeared on the cover of Forbes magazine.

CZ on the cover of Forbes magazine

Of course, Binance did not have a smooth journey. On the night of March 7, 2018, Binance was hacked, and many users found that the tokens in their accounts had been traded for Bitcoin at market price, causing the prices of most cryptocurrencies to drop. After triggering panic selling, the hackers used the stolen funds to buy another token called VIA, causing the VIA price to temporarily skyrocket by over 110%, and subsequently leading to a more than 10% drop in the price of Bitcoin within an hour.

After the incident, Binance was criticized for “stealing from itself and blaming hackers”.

At the end of 2017, Binance’s financing negotiations with Sequoia China broke down, and CZ and Sequoia had a dispute for over a year. In 2018, Sequoia Capital applied for an injunction in the Hong Kong High Court to prohibit Zhao Changpeng from negotiating with other investors. After the Hong Kong High Court rejected the injunction request, Zhao Changpeng publicly challenged on Twitter on May 7, 2018, stating that all projects listed on Binance in the future need to disclose whether they have direct or indirect affiliation with Sequoia Capital.

CZ’s tough attitude once again greatly increased Binance’s popularity in the cryptocurrency circle. In 2018, Bepao Finance statistics showed that Binance ranked first in terms of search volume on Baidu, media coverage, and number of fans among the founders of cryptocurrency exchanges, far surpassing other competitors.

Image source: Bepao Finance

After the “94 incident”, under the pressure of regulatory authorities in various countries and the high discrimination of Western media, many domestic exchanges began to downplay their “Chinese elements” in order to continue their business. With Binance’s expansion overseas, He Yi gradually retreated and CZ took the stage.

At that time, the foundation and ecology of the blockchain industry were still immature, but Binance decided to try in all aspects of the industry, including upstream, midstream, and downstream.

They established Binance Labs in the upstream, initially focusing on industry investments, but later introduced funds from traditional finance. They launched Binance Smart Chain in the midstream, providing project incubation space in a more native encrypted way. In an interview in 2018, Ella, the head of Binance Labs at the time, revealed the launch plan of BSC. Of course, there were also extensions in the industry downstream, such as Binance Info and charity.

In 2018, Binance also made an acquisition, which was Trust Wallet.

This was Binance’s first publicly announced acquisition. He Yi recalled that when they found Trust Wallet, the team was already planning to issue their own token, so the initial impression was not very good. However, after using and experiencing the product, He Yi quickly decided to have further discussions with Trust Wallet. In August, Binance announced the acquisition of Trust Wallet.

CZ was very excited about the acquisition of Trust Wallet, and at the time, he posted a series of tweets on Twitter, claiming that the next generation of mobile wallets was about to begin and likening Trust Wallet to an “unpolished diamond”, implying that Binance planned to expand its wallet solution and integrate it into Binance’s services. Now, Trust Wallet is already the leading wallet in terms of market share.

2019, a turning point in Binance’s history

If we look back now, 2019 may be a turning point in Binance’s six-year history. In this year, Binance broke away from the consumption battle with many other exchanges and began to gradually distance itself from its peers.

Many people believe that Binance’s breakout in 2019 was achieved through its innovative IEO (Initial Exchange Offering) model. In January 2019, leveraging its overseas advantages, Binance announced the relaunch of Launchpad and became the first to embark on the IEO journey. The first project was Justin Sun’s Bittorrent (BTT), which sold out in less than 13 minutes after launch.

Looking back now, Bittorrent doesn’t seem like a project worth mentioning, but at that time when there was no volatility and hope, the impact of a project that gained 20 times its value right after launch was immeasurable.

Indeed, Binance became the most successful player in the IEO space, not only capturing the attention of the market but also attracting users from other platforms. Seeing Binance’s breakthrough, Huobi and OK quickly joined the “IEO club”.

But in reality, what led Binance to ultimately break out was not just the IEO model, because by May and even the end of the year, the “big three” exchanges were still fighting fiercely for the contract market. CZ’s confidence did not solely come from the victory of IEO. In 2019, Binance’s efficiency and progress in all aspects can be described as “terrifying”.

After starting the IEO wave in January 2019, Binance then launched Binance Smart Chain (now BNB Chain) in February; in May, the first DeFi (Decentralized Finance) project CRED went live, and Binance officially entered the derivatives market with margin and contract trading; in June, Binance Labs announced the incubation of 13 new projects; in July, Binance.us was established; in September, Binance continuously launched BUSD (Binance USD), financial products, and staking platform; in December, Binance acquired JEX and launched Binance Cloud, along with the landmark event of investing in FTX.

In the coldest moments of the market, Binance pursued multiple business lines and tried every means to increase trading volume and bring back capital. In that year, Binance’s business progress gradually reflected in the company’s profits.

On September 19, 2019, Changpeng Zhao (CZ) announced on Twitter that Binance’s platforms had traded approximately 7.12 billion RMB (Chinese yuan) in the past 24 hours. CZ stated that it was just a small step for Binance.

Someone has calculated Binance’s profits based on the fiat value of BNB (Binance Coin) burned in the third quarter. In the third quarter of 2019, even though the trading volume in the cryptocurrency market was declining, Binance’s profits continued to grow, increasing by around $10 million compared to the second quarter.

By its third anniversary, Binance had become the largest platform in terms of trading volume in the industry, and the total value of Binance’s platform token BNB exceeded $2.4 billion. (*Based on the proportion of BNB repurchased and burned)

In just three years, Binance has built its own ecosystem with 10 full acquisitions and over 20 investments. The total amount of investment and acquisition is estimated to exceed $500 million. In April 2020 alone, the acquisition of CoinMarketCap, a data aggregator, was exposed to be around $400 million. In the first quarter of 2020, the total amount of investment and financing in the blockchain industry was approximately $800 million, and Binance’s single acquisition accounted for half of the total.

Meanwhile, there are more and more controversies surrounding Binance. Binance, which has always taken the high road overseas, has also adopted the strategy of glamorous ladies. Co-founder He Yi is almost daily involved in social media arguments with “friendly competitors”.

The bigger controversy lies in the business aspect. Last year, Binance started implementing the leverage feature that it had previously criticized. Coupled with the earlier mentioned acquisition of CoinMarketCap, the industry’s largest market platform, Binance’s behavior of athletes buying referees has led to more people denouncing Binance.

After FTX’s collapse, Binance becomes the first target of regulation

Following FTX’s bankruptcy and last year’s cryptocurrency crash, there has been a growing number of lawsuits and various other cases against trading platforms, and Binance naturally became the first target of regulation.

In fact, it was perhaps the United States Department of Justice that first focused on Binance. According to Reuters, the Department of Justice’s investigation into Binance began in 2018 and included allegations of unlicensed money transfer, money laundering, and violation of criminal sanctions.

In 2019, Binance was banned in the United States for regulatory reasons. In response, Binance and other investors set up Binance.US. In May 2021, Bloomberg reported that Binance was being investigated by the US Department of Justice and the Internal Revenue Service for money laundering and tax evasion. In December 2022, Binance’s US entity, Binance.US, announced a $1.02 billion acquisition of Voyager Digital’s assets. This transaction was canceled in April 2023 due to what Binance.US referred to as a “hostile and uncertain regulatory environment”.

At the end of 2022, there was internal disagreement within the US Department of Justice over whether to bring criminal charges, including money laundering, against Binance. Some prosecutors believed they had enough evidence to bring criminal charges against Binance executives, including CZ; while others believed more time was needed to review additional evidence. In addition, sources said officials from the Department of Justice had discussed possible plea agreements with Binance’s lawyers.

Today, Binance’s outcome is directly influenced by the Department of Justice. On November 21, according to Bloomberg, the US Department of Justice is seeking over $4 billion in fines from Binance as part of a proposed settlement for its years-long investigation. Today, Binance announced a settlement with the US Department of Justice, the Commodity Futures Trading Commission, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network regarding historical registration, compliance, and sanction issues. This settlement signifies the company’s acknowledgment of past criminal compliance violations and indicates its commitment to laying the foundation for the next 50 years. The US institutions’ settlement does not accuse Binance of misappropriating user funds or market manipulation.

CZ appearing in Seattle’s court, source: GeekWire

In addition to litigation from the Department of Justice, Binance is also facing lawsuits from the U.S. Securities and Exchange Commission (SEC). In June 2022, the SEC launched an investigation into Binance to determine whether the company’s 2017 BNB token ICO constituted an illegal sale of securities.

SEC accuses Binance and CZ of illegally promoting cryptocurrency securities to U.S. investors and issuing and selling cryptocurrency securities and other investment plans multiple times through unregistered online trading platforms on Binance.com and Binance.US. Binance and CZ have made billions of dollars in profits through this method, while putting investors’ assets at significant risk.

The U.S. Commodity Futures Trading Commission (CFTC), the opposing party to the SEC, has also been using Binance as a means to compete for regulatory authority over cryptocurrencies. The CFTC obtained CZ’s chat records with employees through various means and used them as evidence in a lawsuit against Binance. On March 27, 2023, the CFTC released the lawsuit documents, which included multiple chat records of CZ using the Signal messaging app, including conversations with Binance employees and American clients. The chat records also mentioned instructions given by CZ to employees, requiring them to use Signal for communication regarding the “U.S. ban.”

The next day, CZ responded to the CFTC’s lawsuit on the official website, expressing disappointment with the civil lawsuit filed by the CFTC. “Upon preliminary review, the lawsuit seems to contain incomplete factual statements, and we disagree with the descriptions of many issues,” including compliance technology, prohibition of U.S. user access, cooperation and transparency with law enforcement agencies, registration and licensing, and trading.

Despite CZ repeatedly emphasizing Binance’s focus on compliance, Binance has also made several applications to the court to dismiss the CFTC’s lawsuit. However, this tug-of-war has come to an end today. Rostin Behnam, Chairman of the CFTC, said at a press conference on Tuesday that Binance’s actions “undermined the foundation of a safe and sound financial market,” and the CFTC imposed a record-breaking $1.35 billion in penalties on the company.

The End of the CZ Era

November 22, 2023, a day that will go down in history, especially when it comes to Binance’s history. After the news broke, CZ replied to messages in various communities, stabilizing emotions and even participating in discussions in inactive groups, continuing his role as customer support.

In order to reach a settlement, CZ set aside his achievements in the six years of entrepreneurship and embarked on a new path for Binance’s stability. This settlement also means that Binance acknowledges its past criminal compliance violations and expresses its intention to lay the foundation for the next 50 years of development.

At the same time, CZ also made a “brave sacrifice,” officially becoming a part of Binance’s history, admitting to money laundering and violations of U.S. sanctions, and stepping down as CEO of Binance. The sentencing hearing is scheduled for February of next year.

Binance’s new CEO will be Richard Teng, the former Head of Global Markets at the company. In an open letter, CZ stated that Richard Teng, with his 30 years of financial services and regulatory experience, will lead Binance into the next phase of growth, ensuring the company’s development in terms of security, transparency, compliance, and expansion. CZ himself will continue to provide consulting services to the team and plans to engage in passive investments in the fields of blockchain, Web3, DeFi, artificial intelligence, and biotechnology after a short break.

Super Jun once recalled a past event, where he attended a blockchain conference and met some industry big shots. During the event, a young man voluntarily came to help him take photos. That young man was CZ.

Regardless of right or wrong, CZ is indeed one of the most faithful believers in Bitcoin in the industry. This belief has also witnessed the exaggerated speed of a company going from zero to global number one. As the most important infrastructure for cryptocurrencies, CZ has completed his mission, but Binance has not.

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