Why Binance Is Collapsing ?

This is Changping Zhao, better known as CZ, the CEO of the world's largest cryptocurrency exchange. This gentleman runs the world's largest cryptocurrency exchange. CZ, founder and chief executive of Binance, now founded back in 2017, the company is the world's largest cryptocurrency exchange by volume. In 2021, CZ's fortune amounted to $65 billion, making him one of the richest people in the world at the age of 44. Bloomberg Billionaire Index says you're the 30th richest person in the world. Zhao, or CZ, as he's more commonly known among crypto enthusiasts, is now worth at least $100 billion. At that time, Binance's trading volume surpassed that of the four largest exchanges combined, making it the most reliable and consolidated cryptocurrency exchange platform in the world. Changping Zhao has gone from flipping a burger in McDonald's to founding Binance, now the world's largest cryptocurrency exchange. With approximately 128 million users worldwide and a daily trading volume of around $8.3 billion, Binance promised to be the exchange platform of the future, until something unexpected happened. Its size and decentralized nature has made it a target of regulatory scrutiny over the past few months in several jurisdictions, including Britain and the U.S. Regulators are suing cryptocurrency exchange giant Binance, which they said ran illegal cryptocurrency-based trades with U.S. investors and a sham compliance program. Now, six months after the U.S. Securities and Exchange Commission, SEC, and the Department of Justice filed a lawsuit against Binance for violating U.S. regulations, Changping Zhao and Binance plead guilty to federal charges, including money laundering, resulting in one of the largest corporate fines in U.S. history. So, if a year ago Binance seemed to be the safest exchange in the world, what went wrong? In 2018, CZ started the company, and in six months, Binance surpassed older exchanges to become the world's largest by trading volume — partly because CZ aimed for global expansion from the beginning. But as it grew, Binance faced regulatory issues almost immediately. First, with its original headquarters in China, where the government banned cryptocurrency exchanges shortly after Binance's founding. So, we generally don't like to go up against governments, so we moved out of China. We're actually not — I'm in Tokyo right now, personally. Again, moving to Japan, Binance encountered similar regulatory issues, as the Japanese government warned the company against operating without a license, prompting another relocation. After that, Binance stopped disclosing its location. So Binance doesn't have a bank account, doesn't have an office, so we're moving away from the company concept. We're really just an organization or a community that's working together. But it was also when the lack of a base began to complicate Binance's operations, especially in the United States. At that time, about a fifth of all Binance users were in the U.S., so maintaining operations in this country meant more economic gains than operating anywhere else in the world. For years, Binance founder Chang Peng repeated a promise. Binance.com is embracing regulations all around the world. There was a very strong need for an exchange that wanted to operate everything properly. We welcome anyone to look under the hood for our business. I think we run a very clean business. But behind the scenes, Binance was avoiding regulations. And some critics claimed that the exchange was a ticking time bomb. Concealed, corrupt, crooks, criminals, conmen, carnival barkers, and finally, CZ. That's a walking time bomb. U.S. regulators are known to be quite strict and often the first to start investigating something. And the trend is that other countries follow what the U.S. does. So to comply with the rules, the company launched Binance U.S. in September 2019. The world's biggest crypto exchange, Binance, will launch in the United States in the next few weeks. And while many in the sphere shy away from working in the tough regulatory environment of the United States, Binance has doubled down by opening a U.S.-specific exchange in order to keep in full compliance. The plan was for the site to use Binance's technology and brand, but operate independently of the original company and CZ. But behind the scenes, CZ kept a subset of high-value users on Binance. Essentially, they removed less affluent people to look good but conspired to retain high-value customers, contacting them directly through phone calls to leave no trace. Binance's VIP customer group registered a new account with a location in any other country, where policies were much more lax. Meanwhile, the user transferred their assets to the new account to make it appear that the person was no longer in the U.S. According to CZ, the company had to be very careful to skirt the line, using careful language. We can't say they are U.S. users and we want to help them. We say we misclassified them as U.S. users, but they're not really. A new DOJ report shows that these issues extended beyond the U.S., allowing Binance to enable money launderers to move money through its platform. Even when illegal funds were found, Binance made exceptions for its VIPs. For example, a user was told to be careful with the flow of funds, especially from places like Hydra, a darknet website where drugs, weapons, and malware were traded. However, with all this happening almost in plain sight, Binance was so big and attractive to cryptocurrency enthusiasts that, despite its lax anti-money laundering controls and its unregulated status, the platform registered millions of new users every month. Although regularly Binance published reserve proofs showing customers' assets backed one-to-one and billions of additional dollars, reserve proofs did not fully show the responsibilities of those handling that money, prompting calls for a complete audit for years. However, each time this possibility was raised, the CEO's response was not satisfactory. In 2021, while Binance operated outside the law in the United States, Binance's compliance director at that time wrote to a colleague, We are operating as a f***ing unlicensed securities exchange in the USA, bro, according to a presentation to the SEC. Both the SEC and the Department of Justice began investigating the company's actions and sent subpoenas to Binance in 2020, and other countries followed suit. Despite growing skepticism, the company continued to grow. In early 2022, CZ's fortune was estimated at nearly $100 billion, placing him among CEOs like Mark Zuckerberg and Warren Buffett. But in 2023, after CZ's resignation due to falling cryptocurrency prices and the collapse of FTX and other firms, things started to unravel. In March, the CFTC sued Binance, alleging that the company continued to operate illegally in the U.S. In May, the company withdrew from Canada, its only major market in North America, citing changes in regulation. Then in June, the SEC filed a lawsuit against CZ and Binance, alleging that CZ still maintained undisclosed control over Binance U.S. Months later, more countries initiated investigations, and the company withdrew from others, especially in Europe. In July, Binance laid off an eighth of its staff and several top executives left the company, revealing the unstable situation of the exchange. Then, in November, Binance planned to pay a massive sum in fines and plead guilty to a criminal charge. Following recurring recommendations from their lawyers and the increasing scrutiny from U.S. regulatory entities, on November 21st, CZ pleaded guilty to violating anti-money laundering requirements. As a consequence, Binance will have to pay the Department of Justice $4.3 billion in fines. Now, Binance is paying one of the largest corporate penalties in U.S. history. This agreement will allow the company to continue operating. However, CZ will retain his majority ownership. Rather than implement the basic anti-money laundering safeguards that his team recommended, safeguards required by U.S. law, Binance and its founder operated as though the rules didn't apply. In a statement on X, he said he resigns as CEO and will take a break. He also claimed that user funds are SAFEU, a Binance term implying they are secure. Richard Tang, former head of global markets at Binance, will take over as CEO. As part of this settlement, Binance will have to comply with several rules. And that means you're going to have a lot of much tougher oversight from U.S. authorities on the exchange. The question now is, can Binance survive without CZ? Binance declined to comment, but said in a public statement, These resolutions acknowledge our company's responsibility for historic violations of criminal compliance and allow our company to turn the page on a challenging but transformative chapter of learning and growth. It is unclear how the impact of the charges for the world's largest cryptocurrency exchange could affect the market overall.