Titanic Tussle: Changpeng Zhao’s Binance Battle Ends in Defeat
Changpeng Zhao had carefully crafted the persona of a tough fighter in the realm of cryptocurrencies.
When his rival Sam Bankman-Fried’s crypto empire collapsed a year ago, Zhao, or “CZ” as his fans call him, was at the center of it all, looting his money in a very public way and helping to trigger the ultimately fatal breakout. companies. Years earlier, he argued that the company’s headquarters were where he happened to be, a thinly veiled bulwark against regulators trying to nail down jurisdiction. And this March, when U.S. regulators accused Zhao and his company Binance Holdings of violating U.S. securities laws, his online response was “4,” which is Zhao’s code for rejecting something unworthy of his attention.
On Tuesday, however, Zhao cut a very different picture in a Seattle courtroom. Dressed in a dark suit and light blue tie before a federal judge, he pleaded guilty to felony charges of money laundering and violating U.S. sanctions, including allowing transactions with Hamas and other terrorist groups under a broad agreement with the Justice Department. the largest active crypto exchange. Binance itself agreed to plead guilty to criminal charges and pay more than $4 billion in fines. Zhao resigned as CEO and has to pay a $50 million fine.
In many ways, Zhao’s surrender is the culmination of years of lobbying by international regulators to rein in Binance and impose regulations on Binance — and the industry by extension.
What’s more, it’s the second time in less than a year that the crypto universe, still reeling from a crash that knocked about $2 trillion off its market value, has lost one of its biggest stars. Bankman-Fried may have been the best-known name in crypto, but Zhao, worth nearly $100 billion at its peak in early 2022, was the richest and most influential.
“This is a big deal,” said Michael Rosen, chief investment officer at Angeles Investments. Zhao’s “vision helped him until it hurt him”, eventually making him a big target for the authorities.
Richard Teng, a civil servant turned crypto executive, followed Zhao.
Binance Coin, a cryptocurrency also known as BNB and the main transaction currency on the exchange, fell more than 8% on Tuesday.
Zhao played a key role in bringing cryptocurrencies into the mainstream. He built Binance into a juggernaut that at one point controlled nearly two-thirds of spot trading on centralized exchanges. It attracted regulators and law enforcement agencies around the world.
The departure of perhaps crypto’s most iconic remaining leader comes as the industry tries to put its reputation behind scandals, scams and other illegal activities. Several entrepreneurs associated with that era, from Bankman-Frid to Do Kwon and Alex Mashinsky, are either in prison or facing charges for alleged crimes that resulted in multibillion-dollar losses.
Zhao faces up to 10 years in prison, but is expected to get a maximum of 18 months under a plea deal that appears to spare him the harsh punishments other high-profile crypto criminals have faced. The Ministry of Justice has not yet decided what length of prison sentence he will seek.
Born in China, Zhao moved to Vancouver at the age of 12 and became a Canadian citizen. He earned a degree in computer science from McGill University and began his career building trading systems, including a stint at Bloomberg LP, the parent company of Bloomberg News.
In 2013, Zhao was running his own software company in Shanghai when he discovered Bitcoin in a poker game. After working at crypto companies Blockchain.info and OKCoin, he started Binance in 2017 with Chief Marketing Officer Yi He, with whom he has children.
Binance quickly went on an acquisition spree, transforming itself into a brokerage firm, digital wallet, hedge fund, escrow service, data provider, digital art marketplace, and token issuer—all under Zhao’s direct control.
In just a few years, Zhao was the richest person in crypto. Favoring black polo shirts emblazoned with the Binance logo, he became a fixture at crypto conferences and spent 580 hours on airplanes in 2022 by his own estimate.
In crypto exchanges, the lack of separation between common business functions such as custody and trading services, unlike in traditional finance, has raised concerns that giant crypto exchanges like Binance could pose systemic risks.
When Bankman-Fried’s FTX collapsed in November 2022, billions of dollars in client funds were trapped because FTX had also lent funds to the hedge fund it controlled, Alameda Research, which had made huge losing bets. Zhao himself helped hasten FTX’s demise by tweeting about the sale of Binance-owned FTT, prompting efforts to cash out FTX.
Bankman-Fried was convicted of massive fraud in early November and is awaiting sentencing. He faces decades in prison.
Binance and other exchanges have argued that they do not pose similar risks because their customers’ assets are kept separate and therefore withdrawable at any time. Zhao himself regularly uses the term “SAFU” in tweets to reassure customers that their funds are safe.
In the third quarter, the stock exchange’s share of all spot market trading was around 38%, compared to almost 55% in the first quarter of the year, researcher CCData says. For comparison, Coinbase Global Inc., the largest US crypto exchange, had a market share of 5.7% in the quarter.
While Zhao publicly showed defiance amid the charges, Binance officials worked behind the scenes with regulators. Even Zhao’s official statement in March was a little more conciliatory than his “4” tweet, which said the company was looking for “suitable solutions.”
4 tweet quickly became a favorite of his online punters on Tuesday. It actually represented, they laughed, the $4 billion fine that Binance would pay.
