‘Every battle is a do-or-die situation,’ Binance co-founder Yi He writes ILLUSTRATION BY ALEXANDRA CITRIN-SAFADI/WSJ By Patricia Kowsmann , Caitlin Ostroff and Angus Berwick Sept. 26, 2023 8:00 am ET 123 After FTX crashed, the world of crypto seemed to belong to the largest exchange, Binance. Less than a year later, Binance is the one in distress. Under threat of enforcement actions by U.S. agencies, Binance’s empire is quaking. Over the past three months, more than a dozen senior executives have left, and the exchange has laid off at least 1,500 employees this year to cut costs and prepare for a decline in business. And while Binance still looms large in crypto, its dominance is dwindling. Binance now handles about half of all trades where cryptocurrencies are directly bought and sold, down from about 70% at the start of the year, according to data provider Kaiko. The Securities and Exchange Commission is separately suing two major cryptocurrency platforms, Binance and Coinbase. WSJ’s Caitlin Ostroff breaks down the lawsuits and their potential impact on the crypto industry. Photo illustration: Adam Adada/Xingpei Shen What happens to Binance will have immense implications for the crypto industry because the exchange is so big. Industry players and watchers say other exchanges would fill the void if Binance were to collapse. But in the short term, liquidity in the market could evaporate, driving the price of tokens sharply down. One institutional trader told The Wall Street Journal that his company has conducted fire drills to withdraw its assets from Binance quickly in the event of a meltdown. Yi He, Binance’s co-founder and chief marketing officer, vowed to overcome the troubles in a message to Binance staff last month. “Every battle is a do-or-die situation, and the only thing that can defeat us is ourselves,” she wrote in the message viewed by the Journal. “We have won countless times, and we need to win this time as well.” The U.S. Justice Department has undergone a yearslong investigation that could result in criminal charges for Binance and its co-founder Changpeng Zhao. PHOTO: JOSEPH NAIR/BLOOMBERG NEWS Binance is a frequent investor in third-party crypto projects and beyond. Binance has invested in X, formerly known as Twitter. Binance co-founder Changpeng Zhao—or CZ as his 8.6 million X followers know him—is the biggest face of crypto. “You just can’t quantify what would happen to the industry if Binance disappeared, given it has been responsible for fostering a huge amount of innovation and growth,” said Anthony Georgiades, a general partner at Innovating Capital, a fund that invests in early-growth companies. NEWSLETTER SIGN-UP WSJ Crypto Smart and accessible crypto market analysis for investors. Subscribed The U.S. Justice Department has undergone a yearslong investigation that could result in criminal charges for Binance and Zhao as well as billions of dollars of fines, according to people familiar with the probe. Binance also faces a Securities and Exchange Commission lawsuit that alleges it and Zhao operated illegally in the U.S. and misused customers’ funds. The firm has acknowledged past mistakes but says customer money is safe and it is committed to compliance. “We have worked tirelessly not just to learn the lessons of the past, but also to continue to invest in the teams and systems that ensure user protection,” a spokesman said. Binance launched in China in 2017, though it claims to be based nowhere, with staff scattered around the world. Its global website is accessible by traders almost everywhere, but that number is falling as its presence has been forbidden in many countries. In Europe, more countries are shutting their doors to the exchange. Change in share of global dollar-denominated spot crypto trading, year-to-dateSource: KaikoNote: Data are through Sept. 4. BinanceOKXHuobiBybit-12 pct. pts-10-8-6-4-202468 Share of dollar-denominated crypto trading in the U.S.Source: KaikoNote: Data are weekly Feb. 2023Sept.01020304050607080%CoinbaseBinance.US In the U.S., activity at its local exchange, Binance.US, has basically dissipated. Its chief executive officer, legal chief and risk head all left recently. In a virtual Binance.US meeting days before his departure earlier this month, Binance.US CEO Brian Shroder said revenue at the exchange had fallen 70% year to date, according to a presentation viewed by the Journal. Executives looked on with dismay. Shroder told employees Zhao would need to resolve “his regulatory matters, put his .US holdings in a blind trust, or sell his shares” in order for the U.S. platform to maintain its growth initiative. Those steps would allow the company to unblock banking relationships and get licenses, he said. Zhao is the majority owner of Binance.US and the global exchange. A spokeswoman for Binance.US declined to comment. Binance and the DOJ have been talking for months, according to people familiar with the discussions, and inside Binance, there have been discussions on whether Zhao should step down. Binance’s chief compliance officer, Noah Perlman, met with DOJ officials to discuss their concerns. PHOTO: NOAH PERLMAN Zhao’s insistence in remaining at the helm of the company has frustrated some executives who believed him leaving would improve the chances of the company surviving, the Journal previously reported. The company upheaval has also hurt employee morale. Employees confronted Zhao in a summer meeting following layoffs, according to messages viewed by the Journal, in a rare showing of criticism. “Some ppl laid off were given 0 days notice and/or found out they got laid off because they couldn’t login to the system anymore. How is that treating them respectfully? Is 2 weeks severance respectful?” one anonymous employee asked Zhao in the all-hands meeting chat. Nine others upvoted that. The question went unanswered. A further stumbling block for Binance came in late August, when the Journal published an article on Binance customers’ use of sanctioned Russian banks. The DOJ has also been investigating Binance in connection with possible violations of U.S. sanctions on Russia, the Journal has reported. Following the Journal story, the Justice Department questioned Binance about the banks’ usage, and Binance’s chief compliance officer, Noah Perlman, met with department officials to discuss their concerns, a person with direct knowledge of the matter said. SHARE YOUR THOUGHTS What does Binance’s meltdown mean for the rest of the crypto industry? Join the conversation below. Pressure from the DOJ was partly responsible for Zhao’s decision to begin winding down Binance’s business in Russia, once one of its most important markets, the person said. Over the following two weeks, Binance barred customers from using the sanctioned banks and forced out the executives managing its Russia business. It said it was considering a full withdrawal from Russia. Zhao publicly remained defiant. “We are one community,” he wrote on X on the day the Russia executives left. “Keep building!” But behind closed doors, Zhao has been bringing new lawyers to handle the DOJ case, according to people familiar with the move. And Zhao has been staying put in his home in the United Arab Emirates, which doesn’t have a mutual extradition treaty with the U.S.
Be prepared for a lawsuit dismissal from the judge. Since the SEC doesn't even know what they're talking about