In the next ten years, there will be no second Binance in Crypto.

There Will Be No Next Binance in the Crypto Industry Within the Next Decade

Author: Ginger Lao Qin

Foreword:

The decision to start writing this article was made in the new year of 2023, more than a month after the FTX collapse. I was curious about how CZ could push for the end of FTX and started to investigate the development trajectory of Binance. It took me almost 3 months to clarify the development history and business focus of Binance, but I didn’t publish it because there were some crucial missing parts.

Until I saw the latest news about Binance: “Binance to LianGuai $4.3B to Settle U.S. Criminal Case; Changpeng ‘CZ’ Zhao Resigns as CEO and Pleads Guilty in Seattle.” (from Coindesk 2023.11.22)

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The regulatory sword has fallen on Binance, and the CZ era of Binance’s story has come to an end. The missing part of the article has been filled, and it can finally be published.

Introduction

Binance has become an enviable and awe-inspiring company in the cryptocurrency industry.

In just over 6 years, this company, under the leadership of CZ (Changpeng Zhao), has become the most prominent team in the history of cryptocurrencies, thanks to its global layout, the fast lane of market cycles, decisive decision-making, and a highly practical vision.

As of December 2022, Binance has 120 million users worldwide, occupying over 70% of the entire cryptocurrency trading market share.

In 2022, there were frequent incidents of blockchain industry defaults, and market uncertainty about asset security reached its peak. The FTX incident, driven by Binance founder CZ, catalyzed a new round of collapse, and the industry abruptly entered a deep bear market. Many institutional and individual investors have not yet recovered from the shock of assets going to zero within half a day, and the domino effect of FTX and other blockchain companies’ collapse has not ended.

It is hard not to agree that after this round, there are no institutions that can compete with Binance. A joking saying circulating in the industry can prove its status: “There are two types of exchanges, Binance and non-Binance.” Many market participants have a subtle uneasiness, which comes from the question: Why does a centralized institution dominate the industry in the decentralized field? Is this a delicate balance?

However, Binance today is more than just an exchange.

Looking back at Binance over the past few years, most of its important decisions have been positive and effective. With the bull market in 2017 and the following two cycles, we can clearly feel the turbulence and growing strength of Binance.

This article focuses on the business actions and development path of Binance from its inception to the present. From the perspective of the development laws of the cryptocurrency industry, it deeply analyzes the important milestones of Binance’s entrepreneurial path. If you have different opinions, please feel free to discuss and correct.

The Thrilling Start and Eventful Journey of Binance

CZ is a master of trading. Before founding Binance, he was already a very experienced player in the trading field. From Tokyo Securities to Fusion Systems, from OK to Binance, trading has been part of his career for over a decade.

If his experience in going all in on blockchain in 2014 and working at OK helped him understand the game of decentralized finance, then founding Binance was his practical application of that understanding. In this rapidly changing and unpredictable new industry, there is nothing more adventurous than creating a complex and massive commercial empire from scratch.

On July 2, 2017, the first token offering (ICO) raised $15 million.

On August 30, 2017, the servers were migrated overseas.

On September 4, 2017, the People’s Bank of China officially announced the ban on ICOs.

In September 2017, due to the impact of the ban, Binance compensated users for losses of nearly $6 million from four ongoing ICO projects.

In September 2017, just 50 days after its launch, Binance had users from over 180 countries.

On January 10, 2018, the number of registered users on Binance exceeded 5 million, with a trading volume of over $10 billion, making it the world’s leading cryptocurrency exchange.

Binance’s debut was not without difficulties, in fact, it was very risky. ICOs were exhilarating for CZ, as they had advantages such as avoiding the problem of institutional investors having too much control and unequal distribution of shares, as well as being subjected to too much interference from investors. This crowdfunding model, similar to the internet, was highly popular in the cryptocurrency market at that time. Investors were mainly individuals and the investment chips were more scattered. Based on community-driven trust, it was able to gather a larger number of people with common knowledge and beliefs. They would generally support projects based on the personal experiences and concepts of the project founders.

Twist One: Token Price Plunge

ICO shifted fundraising from institutionalized to community-based. Binance achieved great success in its first round of fundraising, raising the equivalent of $15 million in Bitcoin and Ethereum. However, a month later, when Binance officially launched BNB, the token experienced a downward plunge in price. The community gradually started to lose trust, mainly because the price of BNB was lower than during the ICO, making early participants feel like they had made a bad investment. At that time, Binance’s exchange products were not yet live, and users couldn’t obtain specific information about whether Binance would fulfill the product plans outlined in its whitepaper. They had no way of knowing what achievements this former co-founder and CTO, who had split from OK in a messy manner, could deliver.

Ten days later, the Binance exchange successfully went live. However, this couldn’t dispel the doubts that users had accumulated. In the blockchain industry, 10 days can feel like 10 months, and many extreme situations can arise. CZ even invested his own funds to buy BNB, but the effect was minimal, as the price of BNB dropped from the ICO price of $0.15 to a low of $0.0997 in August.

Turn Two: The Addition of He Yi

From a realistic perspective, Binance urgently needed a boost to restore user confidence. After enduring tremendous pressure for over twenty days, the good news finally arrived – Binance announced the addition of He Yi. Prior to this, He Yi led OK to break into the public eye as a senior media figure, playing a significant role in driving traffic to OK in mainland China. The early users of the domestic blockchain highly praised her. Her addition was a godsend for Binance, as user trust in He Yi gradually stabilized the price of BNB.

However, Binance’s early crisis was not completely resolved. In August 2017, just two months after completing their ICO, rumors of imminent danger reached the Binance office in Shanghai. In the interest of safety, CZ moved the entire team to Japan, completely leaving China. At that time, Japan was the first country in the world to recognize cryptocurrencies as financial assets, providing a favorable regulatory environment as fertile soil for decentralized financial development.

Turn Three: Restrictions on ICOs

In September 2017, Binance, which had made its debut through ICOs, was responsible for launching multiple new projects in the same manner. The “94 ban” had a significant impact, as the People’s Bank of China officially announced a ban on ICOs. These new projects suffered greatly from this sudden policy change. In order to preserve its reputation, Binance decided to fully reimburse users for their 6 million dollars in losses. The Binance brand was just beginning to take shape.

Turn Four: Leaving Japan

In January 2018, the cryptocurrency market witnessed the largest theft in history, with Coincheck losing $530 million worth of cryptocurrencies. Shortly afterwards, the Japanese Financial Services Agency issued eight “clean-up orders,” inspecting 32 cryptocurrency exchanges in Japan. Several exchanges were fined, ordered to make improvements, or shut down.

Not long after Binance had established a foothold in Japan, the exchange faced a phishing attack, resulting in the Japanese government raising concerns about compliance and fund security. Due to the unclear stance of the Japanese government, uncertain business conditions, and overly strict policies, Binance decided to abandon Japan as a key country for global operations and accepted an invitation from Malta, which had a more open attitude towards cryptocurrencies. From that moment, Binance embarked on a journey to achieve global regulatory compliance.

Turn Five: Crisis Resolved

The addition of outstanding partners to boost confidence, the establishment of the brand, the stabilization of cryptocurrency prices, operating from a country with an open policy, and overcoming the restrictions of regional policies – all these factors enabled Binance to overcome the first hurdle as a startup team. With market confidence restored, sufficient cash flow, the opportunity of a bull market at the end of 2017, liberation from geographical restrictions, a good market reputation, and explosive growth in the number of users and trading volume, Binance gained the confidence to expand significantly.

As the “crazy bull market” that industry practitioners have been talking about gradually begins its prologue, in January 2018, the secondary market reached the peak of that cycle. Binance, in just 6 months, with the help of the market’s tailwind, completed its first overtaking maneuver. The number of registered users exceeded 5 million, and the trading volume exceeded 10 billion US dollars, securing its position as the leading digital asset trading platform.

Building Business Moats

If Binance hopes to replicate the “Maltese olive branch” style of compliance landing on a global scale, it must have a more complete industrial chain. This not only helps local governments generate economic revenue but also resolves local employment issues, while bridging the trust gap between the blockchain industry and traditional industries.

All martial arts in the world, for quick success. Binance’s business expansion is rapid. The essence of trading lies in monetizing traffic. To increase the efficiency of monetization, Binance only needs to do three things: gain more traffic through branding, improve more trading scenarios, and enhance branding while increasing the efficiency of traffic monetization.

If we classify Binance’s existing business architecture according to a triangular structure, we can see that no matter which line it is, it ultimately serves trading. Doing transactions is similar to selling water – traffic is everything. While Binance is expanding parallel businesses, it does not linger in battle. Its core goal is still to obtain traffic to serve trading itself.

• Traffic Expansion Businesses: Listing, BSC ecological projects, external media, communities, wallets, live streaming, feed, digital identity (BABT), market data platforms, Binance Academy;
• Trading Scenario Businesses: CEX, DEX, NFT platforms (IGO Chain Games), LaunchLianGuaid, derivative trading (contracts, futures, leverage), cloud services, Binance Savings, earning coins, staking (mining pools, dollar-cost averaging, staking), financial services (exchange and payment, gift cards), institutional users (asset management, lending, brokers, OTC, API services), stablecoins (BUSD);
• Branding Businesses: Incubator Binance Labs, BSC Ecological Fund, Binance Research Institute;

Expand the Traffic Pool, Enrich Trading Scenarios

In December 2022, CZ stated in a TechCrunch video interview that 90% of Binance’s revenue comes from trading fees. According to Bloomberg’s analysis, Binance’s annual revenue in 2022 is estimated to be around 20 billion US dollars.

Where does the traffic come from?

First and foremost is the attractiveness of the assets themselves. By raising the threshold for listing assets, assets with traffic and popularity are listed, and the trading volume of projects captured by the exchange increases. Generally, Binance’s listed projects have 20 times the growth potential, and the instant traffic in the spot domain is very high.

Next, it is the wallet and data platform layout. These two categories are widely regarded as the gathering places for traffic in the blockchain market. The former helps the market accumulate transaction users of different values, while the latter helps the market reach cryptocurrency enthusiasts.

In addition, in addition to launching more popular spot assets and trading scenarios with existing functions on the platform, assets that cannot be selected by Binance Exchange have also expanded more trading channels. For example, payment products are used to access project parties, and embedded payment channels are used to exchange assets with BNB. In this way, many assets can obtain transaction fees through BNB trading without having to be listed on the exchange.

Furthermore, KOLs (Key Opinion Leaders) are roles that Binance attaches great importance to because they have a large amount of traffic. There are many policies and benefits specifically for KOLs, such as trading rebates, KOL benefits, and CZ’s attention. All of these allow KOLs to spread the word about Binance in their social circles. In addition to PR on the brand in the early years, in the later stage, Binance only gathers with KOLs at any major conference or bustling industry week.

KOLs, content, wallets, and data platforms help users reduce the barriers to understanding and using cryptographic products. From a long-term perspective, if Binance can firmly establish its position from the entry point of traffic, then the Binance brand will become the first stop for global users to enter the cryptocurrency market.

Interestingly, Binance has added live streaming and feed features to its own app, meeting the market demand corresponding to AMA (Ask Me Anything) and Twitter promotions. This move is similar to Ant Forest in Alipay, increasing user activity and stickiness while serving as a channel for traffic circulation within the ecosystem.

The academies and research institutes are responsible for basic and in-depth education of users and converting the most inactive users through content.

Where does the traffic go?

Binance has successively seized the spot market, new coin launches, derivatives trading business, and captured the mainstream trading crowd in its hands. At the same time, it gradually opens compliant cryptocurrency exchanges and fiat exchanges globally, updates products in more than 40 languages, and captures trading volume on a global scale.

In the rise of DeFi (Decentralized Finance) in the encrypted Lego community, Binance did not miss out and decisively launched DEX (Decentralized Exchange), stablecoins, and lending businesses, along with financial services such as exchanges, payments, and wealth management. It gradually penetrates into more field lines and traditional trading scenarios.

For large capital, Binance provides institutional user scenarios, offering services such as large-volume transactions, asset management, lending, brokers, OTC (Over-The-Counter), and APIs to provide convenience for market-making and institutional entry and exit. The trading business expands to low-frequency, high-value scenes.

Binance also did not miss out on the hot topics of NFTs (Non-Fungible Tokens) and GameFi. It was the first to open the NFT trading section within the Cex exchange, pioneered blind aggregation trading and IGO, and obtained active users in the global Web3 direction, expanding trading scenarios to the popular NFT race of “everything can be an NFT”.

The Binance trading network has covered more than a dozen fields and over thirty trading scenarios. These trading scenarios can effectively accommodate trading users with different needs from various fields.

Buffing Capital Operations, Increasing FOMO Effect

Scenarios + Traffic + Brand, this is the stable architecture for Binance’s business expansion. The best way to obtain traffic is to start with projects, plant a seed, water it, watch it bloom, and reap the fruits. In this financial game market, strengthening the brand with capital is undoubtedly the amplifier for all business.

Traffic assets / KOL (Key Opinion Leaders) / brand reach broad markets → Global hackathon → Public chain (BSC) integration projects → Support funds (MVP) acceleration → Binance Labs invests and incubates → Import resources from Binance → LaunchLianGuaid (IEO) / NFT market (IGO) → Cex/Dex secondary circulation → Cryptocurrency use cases

Projects (teams/developers), regardless of which stage they enter, can be labeled with Binance’s stamp, which puts them on the fast-paced train brought by Binance’s brand. Once all the links of this business logic are connected, Binance can become a mature “dream factory” and gain more monetization in projects. In this process, the power of capital can be fully utilized.

Binance Labs is a business unit formed after the release of Binance’s products, and investments and acquisitions have been prevalent in every path of Binance’s development. By comparing it to LaunchLianGuaid, one can clearly sense the rhythm of Binance’s grasp of the market.

(The following are all public data, unpublished investment information is not included in the analysis)

Looking at Binance’s past acquisition cases alone, such as the controversial acquisition of Coinmarketcap, the acquisition of contract trading platform JEX, and the acquisition of the Indian cryptocurrency exchange WazirX, they are all part of its effort to build a complete cryptocurrency landscape. At that time, there was no dominant exchange in the world rankings. Binance’s acquisition cases and the corresponding opening of each traffic entry gave it an advantage in global layout. Each cycle’s hotspots and investment trends and publicity from investment institutions mutually influence each other.

Summarizing Binance Labs, there are mainly two main focuses: one is occupying the industry ecology, with a layout trend of large traffic outbreaks; the other is expanding Binance’s ecosystem, with short-term external traffic effects and traffic circulation capabilities.

Occupying the Industry Ecology

Binance Labs has invested in various fields and concepts, not just staying in their familiar areas.

• 2018-2019 years

Binance’s LaunchLianGuaid and Binance Labs accurately seized the L1 track and brought well-known public chain projects such as Harmony, KAVA, Terra, and Oasis Network, most of which achieved brilliance in the 2020-2021 stage.

• 2020 welcomes the summer of DeFi

Binance Labs has invested in many well-known DeFi projects such as 1inch Network, DODO, etc. At the same time, Binance LaunchLianGuaid has tried the non-mainstream GameFi track, launching Axie & Sand Box, leading the way for the subsequent explosion of GameFi and metaverse concepts.

• The large-scale investment phase of Binance Labs is in 2021-2022

There are many traffic-oriented projects such as NFT and GameFi. However, during this period, except for a few projects like StepN, it has been difficult to replicate the glory of 2019. One possible reason for this is that Western capital, including A16Z, LianGuairadigm, Coinbase, etc., has entered in large numbers and gained a significant amount of influence.

Binance’s ecosystem expansion

Binance Labs has invested in many platform-type projects, including cryptographic infrastructure, compliant exchanges in various countries, financial platforms, investment platforms, quantitative platforms, etc. This is both an extension of their market and business and an investment behavior that showcases their strength.

• Around 2018

The infrastructures they invested in, such as wallets like SafeLianGuail and Trust Wallet, are closely linked to Binance.

• 2020-2021

The holding volume and liquidity of crypto assets have laid a certain foundation, and the derivatives market has become a battleground for exchanges. Binance’s contract beta products and the acquisition of JEX were carried out simultaneously, successfully entering the derivatives market. In the same year, there were also cases like WazirX, Tokocrypto, etc., which helped Binance expand into the Indonesian and Indian markets;

• 2022

The investment target of Binance Labs, WOO Network, provides liquidity in a dark pool manner (WOO Network can internally direct a large amount of liquidity by its liquidity provider, Kronos Research, and by integrating API to orders from other cryptocurrency exchanges, helping Binance manage liquidity.

• 2023

Projects promoted by Binance Labs’ investments like Open Campus, Hooked Protocol, CyberConnect, etc., go online on BSC Chain, having a deeper connection with Binance’s ecosystem and sparking the community’s imagination about the exchange of benefits. Binance also launches a Web3 wallet with low usage threshold, integrating 1inch, theoretically breaking down barriers between Binance exchange users and DeFi users.

Binance Labs’ investments in a large number of GameFi-related projects have greatly aided in traffic growth, enriching the variety of assets on Binance.

From this perspective, the expansion of Binance’s ecosystem expands horizontally and vertically at the same time: one direction is the expansion beneficial to the Binance trading platform, broadening Binance’s strength and stabilizing its cryptocurrency territory; the other direction is the promotion of concepts that may develop into trends, which includes speculating on future markets and promoting popularity to form trends, ultimately leading to alpha returns and benefiting the entire ecosystem.

Binance Labs’ six-year investments, due to the nature of the platform itself, differ from other native cryptocurrency investment institutions. Binance’s focus is not solely on the returns from pure secondary market investments, but rather on seizing opportunities and generating traffic effects. Making money first and then discussing ideals. It has to be said that during the business expansion period, having a single-minded focus is a strategic move.

Timing the Cycle, Fate’s Gears Spinning

Combining the development cycle of the blockchain industry and Binance’s announcements and media coverage over the years, we have compiled a progress chart of Binance’s operations. We will find that Binance has almost hit every suitable timing in the crypto cycle, expanding its operation lines from trading to investment, infrastructure, ecosystem, and philanthropy. Its business moat has been steadily built year after year under the design of its commercial architecture.

2017-2018

Crypto Market Keywords: ICO, Stablecoins, Public Chains & DApps

• The bull market in 2017 was driven by the ICO craze, with over 2,000 projects added globally. Policies in various countries began to tighten in 2018;
• Stablecoins gained popularity as a value anchor;
• The top 30 mainstream cryptocurrencies experienced the highest growth in the public chain field, with the peak in the second half of 2017;
• DApps took over the spotlight in the public chain arena, but their security issues made them vulnerable to hacking attacks;
• 80% of Bitcoin and Ethereum’s computing power was concentrated in China. Due to the policy changes in September 2018, computing power migrated and market funds were heavily locked in speculative projects. Ethereum’s forks and its impact on Ethereum’s price led to a death spiral for projects financed with ETH, bringing the market to a freezing point.

Binance Keywords: Trading Volume, BNB, Infrastructure Building

• Binance only had spot trading and futures contracts. To expand its user base, it implemented two simple and effective policies: the listing of new coins and the establishment of the value of BNB;
• With 0 fees, giveaways, rebates, project token rewards, trading competitions, and development of global ambassadors, Binance captured active users in the crypto market. BNB started to be linked to functions such as discounts on trading fees, profit sharing, voting for listing coins, and participating in platform decisions;
• Binance’s fundamental business architecture, such as Labs, Binance Chain, Launchpad, DEX, Charity, Academy, Research, Trust Wallet (acquisition), and Uganda, played a crucial role in capturing market volume and providing brand value for future growth;

2019

Crypto Market Keywords: Institutional Entry, DeFi Era

• The IEO, led by Binance, drove the market in the first half of the year. However, the ICO bubble dominated by the Ethereum ecosystem continued to burst, with Bitcoin’s “siphoning effect” capturing the highest market share of 70%;
• Native crypto VCs experienced mass failures, with over half of the top ten active crypto funds located in the United States;
• Traditional institutions, represented by Grayscale and Fidelity, attracted over $20 billion in risk funds;
• Huobi Global, OKEX, Binance, Coinbase, and BitMEX dominated the market;
• Liquidity in the spot market dried up, leading blockchain applications towards DeFi. Financial services (settlement and clearing, cross-border payments, insurance, securities) gradually matured. The three pillars of DeFi (stablecoin market, lending market, Dex market) have gradually shown scale amidst the regulatory game;

Binance keywords: IEO, derivatives, BSC, compliance

• After launching in 2017, LaunchLianGuaid didn’t have many projects. In 2019, the first project BTT was relaunched, sparking a new market trend;
• In 2019, only 33 tokens were listed due to low liquidity in the spot market. Binance introduced contract trading and expanded into derivative products such as lending, futures, and wealth management to increase the frequency of user transactions;
• Binance Chain and Binance DEX (decentralized exchange) were launched. In total, 121 trading pairs were listed on Dex, and 165 BEP2 tokens were issued based on Binance Chain;
• BNB’s global use cases expanded to over 180;
• Binance Incubator incubated 21 blockchain projects and directly invested in 14 blockchain projects;
• In September, compliant stablecoin BUSD was issued. This stablecoin, which is pegged to the US dollar and developed in collaboration with LianGuaixos, obtained a license from the New York Department of Financial Services (NYDFS);
• Binance established 5 fiat platforms worldwide, covering over 170 countries and regions, and supporting over 300 payment methods;

2020

Crypto market keywords: Bitcoin value regains, Ethereum dominance, Polkadot / NFT rise

• In 2020, the total market capitalization of cryptocurrencies rose by nearly 400% compared to the previous year. Various institutions and companies, led by Grayscale Trust, continued to increase their holdings of Bitcoin. Bitcoin’s market capitalization reached a peak of 69%;
• The total value locked in DeFi protocols increased 23 times compared to 2019. Dex, lending, stablecoins, aggregators, and other segments of the market saw a frenzy of activity;
• Layer 2 scaling solutions emerged, and the launch of Ethereum 2.0 beacon chain began. The prosperity of DeFi made Ethereum the king of application chains;
• Polkadot, NEAR, Cosmos, Solana, Avalanche, BSC, OKEXChain also entered the DeFi space;
• Starting from September, the sales volume and value of NFTs increased significantly, with major applications and transactions focused on gaming, virtual worlds, and crypto art collections. OpenSea became the leading exchange.

Binance keywords: DeFi, smart chain (BSC), comprehensive business

• Binance’s total trading volume exceeded $3 trillion, with 184 tokens listed in the spot market;
• BSC project deployment accelerated, and a $100 million seed fund was established. BNB shifted from being a platform token (anchored to centralized services) to supporting decentralized services, reaching a total market capitalization of $5.3 billion. The number of applications/platforms supporting BNB increased by 27;
• The total trading volume of Binance’s contracts, options, and spot leverage trading exceeded $1.7 trillion. The total order volume of fiat trading exceeded $31.9 billion, C2C total order volume exceeded $6 billion, and the total trading volume of the OTC commodity trading platform reached $700 million;
• BUSD ranked 4th in the global stablecoin market. Trust Wallet reached over 5 million users, and Binance Mining Pool ranked 3rd globally in terms of network hashrate;
• Binance Launchpad launched 6 token sales, raising $14.72 million. Binance’s new token mining platform, Launchpool, provided liquidity pools for 8 projects with a total TVL value of $900 million;

Year 2021

Key keywords in the cryptocurrency market: mining migration, meme coins, NFTs, regulatory tightening, institutional reshuffling

• The total market value of cryptocurrencies reached $30 trillion, with a thriving primary market and mainstream capital entering the market;
• The price of Bitcoin reached $64,000 per coin, and China’s crackdown on Bitcoin mining caused the price to drop by 50%, leading to a historic migration of mining operations;
• Meme coins surged into the top 10 cryptocurrencies, followed by the influx of blue-chip NFTs like NBA Top Shot, Beeple, CryptoPunks, and BAYC;
• The NFT market and infrastructure exploded, giving rise to new blockchain ecosystems. GameFi and DeFi continued to evolve, and leaders emerged in the metaverse and DAO sectors;
• The SEC approved Bitcoin futures ETF, Bitcoin became legal tender in El Salvador, compliant cryptocurrency companies like Coinbase went public, and NFTs continued to penetrate traditional industries. Chinese institutions gradually lost their position in the crypto battlefield;

Key keywords for Binance: BSC, NFT, investment

• The DeFi summer provided an opportunity for Binance to promote BSC, with active projects on Ethereum gradually joining the BSC ecosystem;
• Within a year of its mainnet launch, BSC surpassed Ethereum in daily transaction volume by nearly 7 times;
• The NFT market was officially launched, with over 2.5 million NFTs issued on Binance in 2021, including over 1 million blind boxes in various domains such as art, sports, entertainment, fashion, and virtual land, as well as over 1 million game NFTs from collaborations with more than 60 game projects;
• After blockchain games were delisted from Steam, Binance launched IGO, with a total trading volume of $188 million;
• Binance Labs invested in Layer 1, DeFi, payment, and multi-chain projects, with a focus on metaverse, GameFi, and NFT projects;

Year 2022

Key keywords in the cryptocurrency market: Federal Reserve interest rate hike, hacker attacks, Ethereum upgrade, new blockchains, Hong Kong opening up

• In January, StepN experienced a death spiral after reaching its peak market value;
• The largest-scale hacker attacks in history resulted in a total of $3.8 billion stolen from projects such as Ronin cross-chain bridge, Horizon Bridge, and Nomad Bridge;
• The collapse of Luna and Terra led to a liquidity crisis for batch lending institutions, with Three Arrows Capital going bankrupt and Celsius, Genesis, and others facing severe impacts;
• FTX collapsed, causing serious liquidity crises for multiple platforms and institutions, including Grayscale, DCG, and Amber Group;
• Ethereum officially transitioned from proof of work (POW) to proof of stake (POS), and new blockchains led by Aleo and Aptos became hot topics in the market;
• Binance issued soul tokens; Web2 brands like Starbucks and Nike explored Web3 technologies; Hong Kong announced its embrace of the virtual asset industry;

Binance keywords: blockchain gaming, RWA, investment

• The NFT sector is becoming more community-driven, entering the field of blockchain gaming, supporting IGO, and minting and listing 2.6 million NFTs, collaborating with well-known personalities in sports, music, and entertainment.
• In addition to the ongoing activity of Binance Live, in 2022, Binance introduced Feed, providing a platform for over 1,000 crypto content creators, reaching over 1 million daily active users.
• Binance launched and tested Binance Card in 6 countries, allowing users to directly use Binance Wallet for cryptocurrency payments at merchants supporting Visa or Mastercard. Binance Pay has added 7,983 merchants and partners, supporting over 70 cryptocurrencies, enabling users to use them in 70 different markets, covering use cases such as recharging, travel, shopping, accommodation, ticketing, tipping, and more.
• Binance Labs invests in various fields such as Layer 1, Layer 2, DEFI, security, multi-chain, content, wallets, and social, with metaverse, GameFi, and NFT projects remaining the main targets.

From the development of blockchain technology to the rollercoaster history of crypto finance, the past few years have been a splendid era for Binance in the decentralized financial world. It has also been a grassroots surprise amidst the battle of the gods. CZ has led Binance to find opportunities for overtaking in different areas:

• 2018: IEO started, creating a listing effect that made people rich
• 2019: Entered the top exchanges through spot contracts
• 2020: DeFi boom, BSC capturing traffic, ecosystem funds competing for new projects
• 2021: NFT frenzy injected vitality into the trading sector, IGO ignited high-frequency GameFi traffic
• 2022: Embracing compliance and tradition through payments, overtaking the biggest competitor from funds security vulnerabilities

A period of market slowdown is the hunting moment for Binance

Decisively abandoning China and growing globally

In the early stages of blockchain market development, China, as the market with a population dividend, has always been the core battlefield of the global cryptocurrency market, and it also has the largest group engaged in Bitcoin mining and trading.

The “94 ban” made Binance determined to step out of China. In this regard, other exchanges that rely on the Chinese user market hesitate because once they go out, there is no way back. Many exchanges claimed to withdraw Chinese users, but their actual operations secretly continued in China. The core team did not directly leave China like Binance until the policies of 2021 shattered the dreams of domestic exchanges operating in mainland China, prompting them to gradually leave China.

• May 2021: China launched a crackdown on “mining” of virtual currencies and initiated withdrawal activities.
• September 2021: China fully banned virtual currency trading.

Completely cutting off the connection between the company and the mainland, and fully expanding globally with users, is very correct, but also very difficult. CZ, who experienced the era of postal coins and cards, knows well the unpredictable trading environment in China. Although there are also restrictions on compliance issues in overseas development, it is at least not completely wiped out. Under the suppression of various domestic policies, the overseas expansion of Binance has actually won more living space for it in the exchange track.

In the first few years of going global, Binance had almost no major competitors in business expansion. Various factors such as relatively relaxed global policies, slow work pace of overseas teams, fast product updates and simple operations of Binance, Chinese users who rely on centralized exchanges, and the trust of Chinese crypto founders in CZ, have allowed Binance to have a core group of early users.

Although it is not easy to have product updates in multiple languages, recruit more staff from language regions and countries, communicate and research policies of different countries, and apply for licenses for local account opening and landing, Binance, with its left hand in trading, right hand in users, and a global perspective, has already gone a long way compared to exchanges restricted by domestic policies. While other competitors are still struggling and trying to grow domestically, Binance has already branched out globally through legal and business means.

In the public chain battle, the decentralization shift of BNB

Binance has always been attacked by so-called “decentralization absolute correctness” investors, claiming that it is not decentralized enough and that BNB token is arbitrary. However, the rise of BSC during the public chain battle phase, coupled with the phased transition of BUSD, has transformed BNB’s value from an exchange token to a platform token. There was both proactive and passive involvement in the process, but it is undeniable that the exchange-driven decentralization of the public chain has resulted in a relatively perfect outcome for Binance.

In 2019, Binance launched a public chain, and the DEX based on Binance Chain also went live. For Binance, the goal is very simple, which is to gain more on-chain projects and traffic. However, due to the lack of a mature business model and a relatively centralized operation mode, the competition among public chains is chaotic, with a few leading decentralized public chains still dominating the majority of the traffic. However, batch acquisition of on-chain traffic is a trend, and Ethereum’s limitations in the market hinder its potential. Binance will not give up its attempts in this field. In September 2020, Binance restarted its underlying layout and launched the smart chain BSC, which supports EVM, is compatible with Ethereum, supports cross-chain interoperability, and is fully integrated with Binance DEX.

In 2021, the DeFi market started with Ethereum. At the beginning of the year, the total value locked in DeFi protocols exceeded $22 billion for the first time, with “liquidity mining” and other gameplay bringing in over 1.2 million user addresses. Ethereum became congested due to the DeFi boom, and scalability solutions continued to be optimized. Polkadot received the highest attention due to its innovative governance collaboration mechanism, with over 320 eco-projects, and in the same year, 60 projects used Binance Smart Chain. The important players in the DeFi track have completed their initial positioning:

• Blockchain (Layer1): Polkadot & Cosmos (dual chain), NEAR (sharding network), Solana (PoH clock mechanism), Avalanche (triple chain structure); Layer2: Optimistic, ZK-rollup, etc.
• Stablecoins: DAI (crypto asset collateral), USDT, LianGuaiX, Basis Cash, etc.
• Protocols / Applications: Compound, Aave, Synthetix, UMA, etc.
• Automated Market Makers (AMM) or DEX: Uniswap, Sushiswap, Curve, Tokenlon
• DeFi Tools: Aggregators (Yearn Finance, 1inch exchange aggregator, etc.), Oracles (Maker, ChainLink), Wallets (Metamask), etc.

The crypto market is quickly heading towards a bull market due to the DeFi craze, and it has also been a year where exchanges and smart chains have joined the battle. The main players of DeFi summer are already in place. Ethereum’s ecosystem has overflowed, forming several factions that share the traffic: Polygon, primarily focused on scalability; Polkadot, primarily focused on mechanism innovation; Avalanche, Near, and Solana, primarily focused on consensus innovation; BSC, OKExChain, and Heco, primarily focused on exchanges.

The first expansion of the BSC ecosystem is coming. With faster transaction experiences, lower gas fees, and Metamask support, the two main applications, AMM and lending protocols, have taken the lead: LianGuaincakeSwap and Venus, aiming for Uniswap and Compound. By seizing the hotspots of DeFi within a short period of time, Binance has also made efforts. Under the $100 million ecological fund, they have added the MVP plan to support and assist developers, carried out Farmer Festival to stimulate on-chain interaction, organized global hackathons through Dorahacks to discover ecological projects, and saw rapid growth in NFT and GameFi sales.

Since the BSC iteration and deployment of applications are similar to Ethereum, ecological projects have rapidly emerged by copying and pasting, bringing together projects in various tracks such as Dex, Swap, banks, yield farms, stablecoins, insurance, oracles, and more. It has also attracted continuous integration of projects from Ethereum, and due to the rapid trend of GameFi support, it has taken over the enthusiasm of the DeFi market.

Ethereum’s congestion is the most accurate entry point. Coupled with the immaturity of Layer2 and the slow development speed of public chain ecosystems, other exchanges have a weaker brand effect. This has allowed Binance to find the right acceleration opportunity. Through scaled operations, Binance has formed an unstoppable trend, and the carnival of Crypto Lego is at its peak based on the BSC atmosphere.

BNB is no longer just an exchange token. It has developed into a token that circulates throughout the entire blockchain ecosystem, just like other public chain tokens, and even has a wider range of applications. It plays an important role both within and outside the Binance ecosystem. These applications include, but are not limited to: using BNB as transaction fees on the Binance exchange, paying transaction gas fees, participating in on-chain governance, providing transaction support for hundreds of DApps, protocols, and games on the BSC chain, participating in Binance ecosystem activities such as IEOs on LaunchLianGuaid, staking on Launchpool, donations to Binance Charity, and making payments through Binance LianGuaiy/Binance Card in thousands of online and offline consumer scenarios.

After continuous expansion, BNB has become the fourth largest cryptocurrency in the market: with a total market value of over 36 billion US dollars, a circulating supply of over 150 million coins, and over 100 million total addresses holding BNB. The price has also grown from its initial price of $0.1 to the current $237.

Seizing FTX’s security vulnerability, a decisive blow to competitors

In the second half of 2022, just after experiencing a black swan event in the industry, the cryptocurrency market was hit hard again – FTX, the second largest global CEX, declared bankruptcy. FTX, as the biggest competitor to Binance back then, fell into the abyss within a few days. With the collapse of SBF’s crypto empire, SBF fell from grace, and the crypto world faced a Lehman moment, with Binance taking the crown.

On November 2, 2022, CoinDesk published an article stating that most of the net assets of Alameda Research, a cryptocurrency trading company under SBF, were composed of FTX’s platform token FTT and tokens “controlled” by FTX. Among the company’s $8 billion in debt, $7.4 billion was actual US dollar debt. This means that there was not only an abnormal relationship between FTX and Alameda, but also the risk of insolvency if these tokens faced liquidity shortages and price fluctuations. CoinDesk’s article became the spark that ignited the whole situation, and in the following days, CZ took advantage of this vulnerability to launch a swift attack on FTX, accelerating FTX’s demise.

Early on November 6th, a Twitter user, Autism Capital, stated that Binance seemed to be preparing to sell its remaining 23 million FTT tokens on the trading platform. The news quickly spread. On the night of November 6th, Alameda CEO Caroline denied the rumor that “Alameda/FTX is insolvent,” and CZ responded on Twitter that due to the recently exposed news, Binance decided to liquidate all remaining FTT tokens on its books. The FTT price quickly dropped from around $24 to around $21. Despite Caroline’s urgent post trying to reduce the impact on the secondary market, nearly $1 billion in assets flowed out of FTX and Alameda’s related wallet addresses that day. With CZ’s mocking tweets, questioning from KOLs and the community, SBF’s argument appeared feeble and powerless.

The aftermath of the Luna collapse had not completely dissipated, and users could not bear the consequences of the collapse of the top exchanges that hold a significant amount of economic lifelines for many users. With the attitude of better safe than sorry, a large amount of assets continued to flow out of FTX, causing the depletion of FTX’s platform reserves. The prices of FTX-related tokens like FTT and SOL plummeted cliff-like, continuously breaking key price levels. On the evening of November 8th, FTX suspended withdrawal requests on Ethereum, Solana, and Tron. Soon after, SBF and CZ announced one after another that Binance would acquire FTX. On November 10th, according to WSJ, FTX faced a liquidity gap of up to $8 billion. Subsequently, Binance officially announced that, based on the results of the company’s due diligence and the latest related reports, they decided not to seek potential acquisition of FTX.com. The FTX collapse directly caused massive losses for investment institutions such as Sequoia Capital, Temasek, Tiger Global, SoftBank Group, and LianGuairadigm. Many platforms connected to FTX faced liquidity crises, and the overall cryptocurrency market declined, with a large number of FTX users flocking to Binance.

So far, this battle is basically settled. If CZ’s previous attacks only played a supporting role, then announcing the acquisition of FTX and then backing off at a critical moment dealt a fatal blow to SBF. From an objective perspective, even if FTX’s fund security issue did not explode at that time, it might still encounter a crisis in the future under similar circumstances. CZ happened to hunt down the opponent while Binance, under the premise of having solid business operations, was capable of doing so.

In fact, the feud between CZ and SBF has been going on for a long time. They have gone through different stages, from allies to friends and then to enemies. The struggle between CZ and SBF not only stems from conflicts and competition in business and ecological layout but also believed to be a collision between the forces/interest groups they represent. SBF has shaped the image of Wall Street’s white elite, representing the traditional financial power primarily based in Wall Street, while CZ represents an emerging encryption force led by ethnic minorities (Chinese) that is not favored by the US government, constructing his own encrypted empire with a global mindset.

Looking back at the whole process, CZ has always shown composure. As a leading exchange that controls the lifelines of a large number of users, when the market was attacking FTX, Binance could not stay out of it. CZ must have anticipated this but still chose to act decisively. Binance did experience a certain degree of backlash – on December 13th, Binance announced a temporary suspension of USDC withdrawals, intensifying market panic. Between December 12th and 14th, net withdrawals from the Binance platform reached 6 billion USD. On December 14th, CZ said that this large-scale withdrawal event was a “stress test,” which “helped establish the credibility of tested exchanges.” This reflects CZ’s confidence in his own capabilities, Binance’s sufficient funds, and his ability to “withdraw effectively.” It was partially validated in the subsequent surge of regulatory and trust crises faced by Binance.

Caught in regulatory constraints, an encounter leading to withdrawal

Binance had previously obtained a “legitimate identity” for a period of time by cooperating with local governments or local regulatory companies around the world. However, it still closed many businesses due to the lack of local regulatory licenses. Compliance became the sword of Damocles hanging over Binance. Time is running out for them, and they must establish a protective barrier for their global encrypted empire within a short period of time through capital accumulation and business integrity.

Since 2017, Binance has been attempting to obtain a phased “partially legal” status in some regions worldwide through diplomacy, acquisitions, joint investments, philanthropic support, and other means.

Starting in June 2021, in the midst of a new bull market and the DeFi summer frenzy, asset theft incidents have been frequent, global regulations have become more stringent, and the Chinese government has implemented the strictest crypto ban in history. The hash power of Bitcoin and Ethereum is in a state of global migration. On the other hand, the market bubble fueled by Meme-driven Fomo sentiment is gradually bursting, and various exchanges around the world are being affected to varying degrees. Binance is also facing pressure from regulatory authorities.

With the changing landscape of global crypto regulation and the gradual standardization of policies in various countries, compliance risks continue to accompany issues such as asset management opacity, market confidence erosion, and resistance from independent national policies, causing Binance to face the crisis of potential closure of local operations on a moment’s notice. Although Binance has performed better than any other crypto company in the world, the expansion of its global business helps it avoid devastating impacts from policies of a single country, and its revenue has soared during the crypto cycle driven by industry trends.

Some have humorously remarked that CZ’s “foundation-building” is too late, indicating that Binance still faces its most challenging issue of global compliance. So far, this is not an urgent issue for any enterprise in the world, but it is for Binance, dangerous and painful.

BUSD, once a stablecoin with a market value exceeding 22 billion US dollars and one of the top three, is stepping off the historical stage, and Binance has started to yield to the SEC. However, what is surprising is that Binance’s solution to compliance problems is so magnificent. At first glance, it may be shocking, but upon closer inspection, it is flawless.

There have been many discussions about CZ stepping down and Binance settling fines. This introduction pays tribute to the efforts Binance has made to achieve global recognition and planning, and also pays tribute to CZ as the leader of the crypto giant. His clarity, decisiveness, and courage have paved the most stable path for Binance.

Where is the future of Binance?

An ecosystem giant that revolves around trading, blockchain, investment as a means of creating wealth, and compliance as business safeguards has emerged amidst two rounds of industry reshuffling.

I won’t use the phrase “when one whale falls, all things are born” to describe Binance. It has simply ended the era of rapid expansion, and the resolution of compliance issues has created a milestone that cannot be terminated in a timeframe of more than six years. The explosion at the application layer is closely related to Binance. The future of Binance is a significant topic, and the author personally proposes a few speculations.

Speculation 1: What crisis will Binance face in the future

• Mistakes in decision-making by top executives

Under the leadership of CZ, Binance’s decision-making has always been “fast, accurate, stable, and fierce”. Due to the fast-changing industry, small ecosystem, and small ship, many decisions are made based on CZ’s intuition. These decisions prioritize speed and any deviations in business actions do not affect the overall strategy.

But once the cryptocurrency market becomes broader and the industry’s size increases, Richard Teng, as the new CEO, will face more market skepticism about his character and experience in leading Binance forward, unless Richard Teng is just a spokesperson for CZ at Binance.

If there is a strong trust relationship within the management team, there will be fewer problems. However, if there is inconsistency in decision-making and lack of mutual trust, scandals involving the management team or even decision-making mistakes can greatly impact the overall brand and ecosystem expansion. The past challenges were for CZ, but the future challenges will be for the management team.

• Structural gaps in team talent

The overall market consensus is that there will be an explosion at the application layer, with the conversion of Web 2 traffic to Web 3 in the future. Binance’s team might not be young in the cryptocurrency market, but they are relatively young in the overall finance and internet fields. This puts significant pressure on the market operation and management capabilities of middle-level employees in each business line.

Although the total market value of cryptocurrency companies may exceed that of traditional companies, it does not eliminate the continuous existence of problems related to internal business collaboration, circulation, and management. Balancing interests, capabilities, and business will be more complex than in traditional enterprises. Attracting traditional talent (those who understand Web 3) and integrating their abilities in utilizing Web 2 will be a lengthy process.

Talent attrition, collapse of core department productivity, power struggles within departments with excessive manpower, political problems related to vested interests, and deviations in business results due to lack of consensus will always accompany Binance. The biggest fear is when the halo fades, leaving chaos in its wake, with the old guard reminiscing about the past while the newcomers despise the greasiness.

Speculation 2: Possible tracks Binance will emphasize in the next phase

• Storage & AI

Storage has always been considered the missing piece in the cryptocurrency world, and the rapid growth of the AI sector has gradually unleashed the expected demand for storage in the application layer of the cryptocurrency market.

How to integrate computing power, allocate computing power, manage data, utilize data, and ensure data security are essential topics that the cryptocurrency market cannot overlook.

• Decentralized financial plays in the Web 2 business model

GameFi and SocialFi are still the main forces with active traffic, but there may be more assets to be explored in the Web 2 field. If these Web 2 assets have an impact on the future cryptocurrency market, they may include the following characteristics: high-frequency trading, low transaction amounts, and long transaction cycles for individual users. These assets are mainly concentrated in social influence, content creation, copyright, casual gaming, and IP derivatives.

The logic of cryptocurrency investment is gradually weakening in this field, and there is great potential for the development of Fi-based incubation and service-oriented businesses.

• Transitional compliance infrastructure for traditional finance

In the coming years, at least in the next cycle, there will be more traditional companies entering the cryptocurrency market. Blockchain technology and decentralized finance will become more mainstream. The integration of stock markets, fiat markets, and traditional asset markets will increase the overall size of the cryptocurrency market.

Concerning the transition from traditional finance (assets, funds) to the cryptocurrency market, compliance infrastructure is an important area of construction and solution development. Wallets, digital identities, settlement systems, payment systems, or new business forms may emerge due to the influx of a large volume of users.

Conclusion

Although the world of blockchain attracts various talents with its decentralized spirit, in the early stages of industry development and within a short timeframe, the unified operation mode of centralized institutions is the most scalable. In the next ten years, it will be difficult to see the emergence of a giant company that can start from scratch and quickly build up capital, assets, traffic, brand, and influence.

Today’s blockchain world is gradually approaching reality and entering a state of rational convergence. With the continuous improvement of blockchain industry infrastructure and the rapid development of core positioning tracks, it is becoming more difficult to replicate the wild and passionate wealth creation myths, and the market landscape cannot be reproduced as it once was.

In the future, every blockchain company faces a common problem: how to obtain effective traffic from Web2.0. This means that success on a large scale cannot be achieved solely through a single idea and simple organizational structure. Cognition, rationality, and professionalism will become important industry survival rules. Before the next bull market arrives, most institutions do not have the answers to what preparations the market should make.

Postscript

During the process of writing this article, there was no interview with Binance executives or employees from the core business lines, nor did I interview former Binance members. I have no knowledge of their roles and views on Binance’s development.

All content comes from the screening and sorting of public information, including Binance’s official announcements, blockchain media reports, data from professional blockchain data companies, Chinese/English self-media Twitter accounts, public statements from blockchain veterans who have interacted with CZ, and summary articles from other industry media, including annual reports.

Based on consulting nearly one million words of material and the related memories from years of participating in the industry, I systematically analyzed the development trajectory of the cryptocurrency market starting from 2017 and compared it with Binance’s six-year development. It took more than three months to write this article, but it feels like a different world.

Therefore, this article only serves as an analysis and summary by an external person of Binance. I hope I have the opportunity to interview CZ after he steps down.

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