By now, you’ll be well aware that Changpeng Zhao (CZ) has resigned from the beast of an exchange that is Binance. Singaporean ex-MAS director Richard Teng has taken the reins as CEO, following in the few legal footprints left by CZ.
Over $1 billion has left the world’s largest crypto along with CZ as users withdrew their funds in response to the crypto titan pleading guilty to anti-money laundering violations in the US.
Binance was fined $4.3 billion whilst CZ himself agreed to pay a $50 million penalty.
These withdrawals are not necessarily a reflection of the confidence the market has in Teng but rather, the lack of confidence in Binance’s overall position.
As Blockhead contributor Anndy Lian explains, CZ’s supporters were disappointed in his resignation and “if not handled properly they may lose trust or interest in the exchange.”
“Moreover, CZ’s departure could also create a power vacuum or a leadership crisis within, as Teng may face resistance or opposition from some of the existing executives or employees who are loyal to CZ or who have different views or agendas,” Lian states.
Of course, the Binance fallout is serving as good news for its competitors. Crypto trading giant OKX saw its largest daily inflow of $152 million. Bybit enjoyed a $50.9 billion inflow and Bitstamp attracted $30.5 million.
“We anticipate that this will accelerate the outflow of projects, exchanges, founders and firms from direct U.S. regulatory purview,” crypto market maker Auros COO Jason Atkins told The Block. “Compliance will now be a non-negotiable so as to minimize lapses in the AML and KYC requirements in the U.S., irrespective of the country of incorporation.”
Coinbase has experienced a continuous rise in its stock price too, rising 12% over the past few days and more than 41% throughout the past month.
Reacting to Binance’s news, CEO Brian Armstrong took to Twitter to emphasise the importance of compliance.
“Since the founding of Coinbase back in 2012 we have taken a long-term view. I knew we needed to embrace compliance to become a generational company that stood the test of time,” he said. “This meant we couldn’t always move as quickly as others… Today’s news reinforces that doing it the hard way was the right decision.”
Other winners include degens who jumped onto meme coins aptly titled $CZ and $TENG, enjoying returns of up to 100,000% and 14,000% respectively.
4 Fingers, Big 4 Audit, FUD 4 Real
The image of CZ holding up four fingers has become a meme of its own. Stemming from an initial tweet he wrote earlier this year, the figure reflects CZ’s fourth item on his “Do’s and Dont’s” list: Ignore FUD.
With CZ finally exiting Binance, it’s now time to re-evaluate the FUD surrounding the exchange and whether we can apply his advice to his own firm.
As mentioned, Binance is set to pay a fine of $4.3 billion. A simple glance at Binance’s proof-of-reserves will indicate that the exchange backs customer assets one-to-one.
“People can withdraw 100% of the assets they have on Binance. We will not have an issue at any given day,” CZ reassuringly said in an interview. “In crypto, there’s no central bank printing money to bail out banks when there’s a liquidity crunch. Crypto businesses have to hold user assets one-to-one, and that’s what we do – it’s very simple.”
According to Binance, the exchange has $6.35 billion in total assets, which means it should be able to easily pay off the $4.3 billion fine without eating into customer funds.
However, Binance has refrained from disclosing its liabilities. When FTX collapsed, eyes predictably turned to Binance. At that time, CNBC’s Becky Quick pressed CZ on whether Binance could handle a $2.1 billion payment.
“Would you be able to handle it if somebody asked you for $2.1 billion back?” Quick asked him.
“We are financially OK,” CZ replied, failing to provide a direct answer.
When Quick pressed him on getting a Big 4 auditor to vet his firm, CZ claimed none wanted to work with him.
“A Big 4 auditor would reveal [problems],” Quick said. “If you’re saying that some of them don’t want to work with you, that raises questions too. They don’t want to work with you because you don’t have the files and the data that would make them feel comfortable to give their stamp of approval?”
In response, CZ pushed the blame onto the auditors. “Many of them don’t know how to audit crypto exchanges,” he said.
CNBC’s Andrew Ross Sorkin pointed out that Coinbase has a Big 4 auditor, to which a flummoxed CZ replied, “I don’t look at Coinbase.”
Star Trek or Fiction?
In CZ’s internal letter addressed to Binance staff, the now-former-CEO turned to Star Trek for words of wisdom. “I need everyone to continue performing admirably,” he said, lifting from the 2009 Star Trek film.
Binance users will now have to decide how much of what CZ told them is fiction, like his Star Trek quote. Last year, CZ was reluctant to answer whether Binance could cover a $2.1 billion fine. Its current $4.3 billion penalty is more than double that.
Whilst its proof-of-reserves points to a $6.35 billion asset stronghold, Binance’s reluctance to permit an audit means its liabilities could diminish this number substantially.
Perhaps Teng will straighten up Binance’s financials, in line with regulatory demands. But the truth could be painful to hear.
Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.
Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.
An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.