Is Binance, the “big brother of the cryptocurrency world”, starting to go downhill?

As 2022 draws to a close, Binance co-founder and CEO Changpeng Zhao (CZ) appears to have the world at his feet.

Sam Bankman-Fried (SBF), co-founder of FTX , Binance's biggest competitor, approached CZ last November, hoping that the Binance CEO could rescue his exchange. CZ refused, which almost sealed FTX's fate. On November 10, the day before the crypto empire FTX filed for bankruptcy, SBF sent a message to his competitor on Twitter: "Well done, you win."

The collapse of FTX has made Binance the undisputed "boss" in the cryptocurrency world, controlling more than half of the rapidly growing cryptocurrency market by the end of 2022.

If Binance can weather the regulatory shock following the FTX debacle, it will become the go-to place for crypto token trading, and CZ can establish himself as the “acceptable face” of cryptocurrency, even though many still view the market as the Wild West.

“Many people saw SBF as the leader of the industry and saving the industry from regulators , ” said Charley Cooper, former chief of staff of the Commodity Futures Trading Commission ( CFTC ). “When FTX collapsed, everyone saw CZ as a potential savior of the industry’s future.”

Yet while major cryptocurrencies like Bitcoin have stabilized in the wake of FTX’s collapse, Binance has struggled. Its sheer size has made it a target for regulators and lawmakers who want to ensure that broader financial markets are never exposed to “too big to fail” cryptocurrency exchanges.

In the United States alone, financial regulators have accused Binance of illegally serving U.S. customers, improperly controlling customer assets, and ignoring compliance and anti-money laundering standards.

Binance’s size isn’t just a concern for regulators. Crypto advocates also believe that for an industry that champions decentralized finance, no single player or entity should have too much influence.

Charles Storry, head of growth at Phuture , a provider of DeFi projects and on-chain index funds, said: "Binance's predicament highlights the fundamental challenges facing the crypto industry. The tensions between major centralized entities run counter to the industry's original ambition to create a new form of finance based on the principles of decentralization, transparency and a level playing field."

Binance said it believes “healthy competition” is good for the industry and is committed to growing the sector “holistically.”

But whether and how its future works out will help determine whether cryptocurrencies become part of mainstream finance or remain a niche industry beloved by those who want to separate money from the apparatus of the state.

Growth at all costs

In late 2017, shortly after CZ’s cryptocurrency exchange was born, Zhao sent an internal text message to employees: “Everything you do should be aimed at increasing our market share.”

“Other factors like profit, revenue, experience, etc. come second. If you have two things you can do right now, ask yourself which one will help our market share more, and then do that first,” he added.

Binance said that “like any startup, the first priority is to scale the business as quickly as possible,” but “today, we view Binance as a very small part of a larger financial ecosystem.”

Zhao, a Canadian citizen born in China, studied computer science and cut his teeth as a trader at the Tokyo Stock Exchange before turning to cryptocurrency in 2013. The name “CZ” quickly became a household name in the digital asset space.

Under his leadership, Binance quickly became the world’s largest cryptocurrency exchange. By January 2018, just six months after its founding, Binance had 26% of the market share, according to internal company documents seen by the Financial Times, and within a year of its founding, it had employees in at least 27 countries.

Like many young tech companies, it has an aggressive growth culture. “We want to spend 2% of our time making decisions and 98% of our time executing,” Zhao announced at an internal meeting at Binance’s Shanghai office , according to internal recordings obtained by the Financial Times. “So far, our competitive advantage is because we do things, we execute, and we do things well. It’s all about getting things done.”

“If you just sit there and wait for someone to tell you what needs to be done, you’re probably going to be waiting a long time. In fact, you won’t be waiting very long because there’s a good chance someone will tell you to get out of the queue,” reads one onboarding document seen by the Financial Times.

Binance did not directly respond to questions about Zhao’s statement or onboarding documents, but instead referenced a blog post about the company’s principles and culture.

Zhao has built a loyal following that defends him against “FUD” (fear, uncertainty and doubt). A key group of followers are the so-called Binance Angels, which the company describes as “volunteers” who support the Binance community and advance crypto causes.

One person familiar with the matter said that Binance Angels are actually an integral part of the company's operations. "They translate for us, organize local events, help us understand the law, manage communications, and help order goods from local companies."

The company told the Financial Times that its “angels” are passionate ambassadors who support the Binance community in various ways.

Like any startup seeking to change the world, Binance’s early years were high-profile. In the summer of 2018, Zhao accompanied all of the then-Binance employees to Thailand to celebrate the company’s first year.

In footage of the trip seen by the Financial Times, Zhao stood on a beach lined with yachts and was surrounded by about 100 Binance employees who unveiled a sign marking the milestone.

Binance said such events are less likely now: “It was easier to do such trips when the company was smaller.”

Its rapid growth in the crypto space has been shrouded in nondisclosure agreements: In the summer of 2018, a security alert instructed employees to be mindful of what they say on social networks, turn off geo-tracking features on their electronic devices and avoid sharing personal information with uncontrolled audiences.

"Keep your social media space for family and friends. Check your Facebook, Twitter, LinkedIn and Instagram accounts for suspicious people," the warning reads .

Binance said it had made it clear to employees that personal social media profiles "increased the risk of targeted phishing and other social engineering attacks."

Binance co-founder He Yi once described the company as a "007 organization" in an internal text message. A Binance spokesperson said, "As with anything, context is everything."

One former Binance employee said the company’s onboarding process included “a specific PowerPoint that tells you that if you claim to be a Binance employee on social media, you will be fired.”

The company denied the claim.

The person added: “Government is the only place I can think of where you can’t disclose your position - I’ve hardly ever come across that in financial institutions.”

One onboarding document instructs those joining the company to “install a VPN on all devices, computers or phones.” Binance told the Financial Times that it considers security “of paramount importance” and that VPNs add an extra layer of security for mobile employees.

Regulatory "siege"

Binance’s early rapid growth was aided by the regulatory uncertainty surrounding the new phenomenon of crypto. Zhao described himself as “freedom-driven” during the Shanghai conference, declaring to a group of employees that he didn’t like “a lot of rules” and took advantage of the still-controversial points in the cryptocurrency industry to achieve this goal.

“What is cryptocurrency? Is it a security, a commodity, or something else? I defy the many interpretations of this in different countries, even though some of them may be considered law,” he said at the same conference.

When asked about the comments, a Binance spokesperson said the company acknowledged it “made mistakes” in its early days but that after investing heavily in people, processes, and technology, “we are a very different company today when it comes to compliance.”

The young crypto startup ran into regulatory trouble just months after its launch when Beijing banned initial coin offerings, describing the issuance and sale of tokens as “unapproved illegal public financing.” The move ended any possibility of the exchange operating legally in China.

Binance subsequently expanded to Japan despite not having permission from Japanese regulators. Internal communication channels instructed employees not to use Binance email addresses when communicating with external entities in the country.

The company said it has “taken steps to ensure the highest levels of compliance” in Japan, where it acquired a licensed exchange in November.

Just three years after the Binance team vacationed on a Thai beach, the Thai Securities and Exchange Commission filed a criminal complaint against the exchange for allegedly operating an unlicensed digital asset business. Binance said a joint venture called Gulf Binance is now licensed and regulated in Thailand.

As Binance has grown, the list of regulators it has run afoul of has continued to grow. In August 2021, the U.K.’s Financial Conduct Authority said it “did not have the capacity” to properly regulate Binance after the exchange allegedly failed to respond to basic inquiries.

A month later, the Monetary Authority of Singapore placed Binance on its investor alert list, warning consumers that the exchange is not regulated or licensed in Singapore. Dutch regulators have also penalized Binance, fining the exchange more than €3 million last year.

One former Binance employee said: “We felt like insurgents who had overturned the financial system and were driven out of the country.” The company responded that while growing rapidly, “we made some mistakes initially, which we have now corrected.”

Binance’s run-ins with financial regulators have made it difficult for the company to establish a long-term presence, with Zhao often claiming the company has no official headquarters.

But in May 2022, French regulators allowed a subsidiary of the exchange to act as a registered digital asset service provider. Zhao said the country will at least serve as its regional headquarters.

A former employee said: "When I went to the Paris office, it was obvious that this was the most important office (of Binance). Zhao didn't really come to the office, but he was in Paris many times. It was a bit like he was promoting their Paris office. This feeling was very obvious."

But in June, French police launched an investigation into the exchange, accusing it of illegally advertising its services to consumers and failing to conduct adequate checks to prevent money laundering. Binance said it operates legally in France and is cooperating with local authorities.

Crackdown by US regulators <br/>Binance’s good days after the fall of FTX did not last long. In early 2023, the U.S. Securities and Exchange Commission ( SEC ) opposed Binance’s plan to acquire the assets of bankrupt crypto lending company Voyager for $1 billion, and the deal subsequently fell through.

In February, the New York Department of Financial Services ordered a halt to the issuance of BUSD , a Binance-branded crypto token designed to track the price of the U.S. dollar that at one point accounted for about two-fifths of Binance’s trading volume.

In March, the Commodity Futures Trading Commission (CFTC) sued the cryptocurrency exchange, alleging that it illegally approached U.S. customers and that the majority of the company’s reported trading volume and profitability came from “extensive solicitation and engagement” with U.S. customers.

In the lawsuit, the CFTC alleges that a Binance executive said in 2020 that certain customers, including some from Russia, "came here to commit crimes." An employee allegedly replied to a colleague: "We saw the bad side, but we closed our eyes." Binance previously described the lawsuit as "unexpected and disappointing."

Three months later, the SEC, which regulates the U.S. stock and bond markets, filed 13 civil charges against Binance-related companies, including Binance US , and CZ himself.

SEC Chairman Gary Gensler accused Binance of engaging in “an extensive network of deception, conflicts of interest, lack of disclosure, and deliberate circumvention of the law.”

Binance’s offshore trading platform said at the time that it was disappointed and frustrated with the SEC’s action, while its U.S. subsidiary called the lawsuit “meritless.”

The latest data shows that as official scrutiny of Binance increases, its share of the cryptocurrency spot market has fallen to 40% after falling for six consecutive months.

Binance’s ongoing regulatory woes are also reflected in the demands placed on its employees, with some arguing that the organization’s fanatical culture has been replaced by a more brutal one.

The company responded: “We know Binance isn’t for everyone. We even wrote a blog post about why not to join Binance. Cultural fit is important.”

One former employee said: “As much as they want to show Binance as a community, it’s not a company where you really feel respected or valued,” and another former employee said: “I was told I was fired, and then I received a message from HR saying they would send someone to take my laptop and phone away.”

Binance said it strongly disagreed with the characterization that employees did not feel respected or valued, but added that taking back company equipment from departing employees was intended to limit risk.

The company planned a round of layoffs this summer, affecting about 8,000 employees at the time. The exchange said the layoffs were “not a case of right scale,” but a person familiar with the matter responded that it was clear that market forces had to realign the company’s resources.

Binance’s struggles in the face of regulatory intervention and loss of market share aren’t just Zhao’s. The entire crypto industry, which had longed for a period of stability, has instead been plunged into more turmoil. For Cooper, a former executive at the Commodity Futures Trading Commission, this isn’t surprising.

“It’s foolish to think that the most scrutinized crypto company is going to be the savior of the industry,” he said. “If you’re in this for the long term and you’re trying to find stable, long-term players, Binance is definitely not it.”