Bloomberg Línea — The founder and global CEO of Binance Holdings Ltd., Changpeng Zhao refutes accusations that his platform can provide room for illicit transactions and says that the compliance and security of transactions involving cryptocurrencies are at the same level, or even higher, than the procedures adopted by traditional banks.
“We are no worse than the banks. Our compliance is very strong; it is at least to the degree of the banks, if not greater,” CZ, as he is known, said in a face-to-face interview with Bloomberg Línea during his visit to São Paulo last Monday.
The executive spent the week between Sao Paulo, Rio de Janeiro and Brasilia, talking to potential partners (whose names he did not reveal), regulators and clients in Brazil, where he intends to expand Binance’s operations.
CZ said he sees Brazil as one of the 10 most important markets among 180 countries for Binance.
“We use the same procedures as the banks. The banks’ procedures are not 100% effective. We hire the same people who do this in the banks. You can’t guarantee 100%. But we are not worse than the banks,” added CZ, pointing out that Binance has access to the same financial crime databases, and follows the guidelines for the financial sector from regulators, international police, and fraud and money laundering prevention bodies.
Binance is the world’s largest cryptocurrency exchange, has a presence in 180 countries, and has an estimated market share of more than 50% of the transactions involving crypto assets.
According to consulting firm Opimas, the revenues of all crypto exchanges totaled $24.3 billion last year, which was 60% more than the $15.2 billion of traditional exchanges such as the NYSE, Nasdaq, CME, and Brazil’s B3 combined. Of that $24.3 billion, Binance alone took $14.6 billion (69% of the total), according to Opimas.
The company was founded in 2017 by Changpeng Zhao, a 44-year-old engineer with a degree in computer science from McGill University in Montreal, and who specializes in asset trading software.
CZ was born in Jiangsu, China, and migrated at age 12 to Vancouver, Canada, with his parents, who were Chinese university professors. He worked as an attendant at McDonalds in Canada.
Before founding Binance, he worked on the Tokyo Stock Exchange, and founded a high-frequency trading company in Shanghai. Then he participated in several projects related to crypto and blockchain. According to the Bloomberg Billionaires Index, CZ is the 13th richest person in the world, with an estimated fortune of $77 billion.
Regulation is not complete anywhere in the world. We would like regulators to be willing to talk to us, to work with us, to listen to the industry players and to our concerns.
In the interview with Bloomberg Línea, CZ did not rule out talking about any controversial issues, answering questions about an investigation conducted by Reuters news agency that claims Binance did not take into account guidelines from its internal teams regarding compliance to prevent money laundering and financial crimes, and saying that the accusations were made by professionals who were fired for cause and who left the company angry.
CZ aid he was not aware of the existence of an investigation in the U.S. by the Department of Justice and the Internal Revenue Service for suspected insider trading, saying that there is no formal inquiry into this.
He also commented on the Brazilian pyramid case of Pharaoh, stating that if his name was part of the police databases, he would not have used Binance’s infrastructure or banks in the scam.
No Fixed Abode
Binance to this day is criticized around the world for not having a physical address where customers and regulators can knock on the door in case of need or urgency. The idea, somewhat romanticized by crypto enthusiasts, was that this type of business, being in the blockchain environment, did not need to have a physical headquarters because it was totally decentralized. Even labor relations go through this concept of disintermediation, in which employees are a kind of associated service providers, and are not part of the company’s staff, and which is another controversial point according to regulators, as it makes accountability diffuse in the event of irregularities or misconduct.
But this is all in the past, according to CZ. In order to grow and stay within the current global regulatory scope, Binance has surrendered to the status quo and will have an international headquarters, in a place yet to be defined. Asked if Brazil would be an eventual candidate for the company’s global headquarters, or why it wouldn’t meet the conditions for it, CZ talks about the weight of crypto regulation, still under development, that is a factor in this choice.
“The most important thing is regulation, and the goodwill to work with players in the industry. Regulation is not complete anywhere in the world. We would like regulators to be willing to enter into dialogue, to work with us, to listen to the industry players and our concerns,” he said, stressing that the regulation that exists today is not that important because it will necessarily “evolve and change”.
Another important point, CZ said, is for the crypto world to have access to traditional financial services, such as financial institutions, payment companies and digital wallets.
“Allowing banks and financial service providers to work with crypto exchanges is very important. In many countries, the central bank does not allow banks to work with crypto exchanges and this slows the adoption of cryptocurrencies,” he said.
Acquisitions in Brazil
Binance seeks to grow in Brazil, an active local crypto market where Brazilian exchanges such as Mercado Bitcoin and Foxbit already operate, among other players moving into other Latin American markets. It is estimated that more than four million individuals invest in crypto assets in Brazil, which is more than in B3, after decades of campaigning to popularize investments in the Brazilian stock market.
According to CZ, Binance’s main differentiators that allow it to compete among local competitors are competitive costs, high liquidity and security in transactions. “Since we are the largest in the world, we trade the largest volumes, we have price and liquidity. We also invest more in security, which is very important,” he said.
In its entry into Brazil, Binance followed the path of other foreign financial institutions and bought a local brokerage with the objective of obtaining operating licenses from the Central Bank and the Brazilian Securities and Exchange Commission (CVM) - in this case sim;paul, which was in the process of disintegration after selling its client portfolio to Guide and transferring its technology team to Warren.
For CZ, the acquisition of sim;paul - which is dependent on the approval of regulators - will not not make life easier for Binance in Brazil. Last year, the CVM banned the exchange from trading derivatives, such as Bitcoin futures (XBN), on its platform, claiming that it was not authorized to do so. The U.S., UK and Germany also do not allow this type of trading.
“Regulators are very cautious with derivatives because they have high volatility. But we expect that in the long run, when the U.S. and UK allow derivatives, Brazil will probably follow. We are patient with regulations, after all regulators know their markets better than we do, and we need to trust them,” CZ said.
Binance still intends to make other acquisitions in Brazil, in segments adjacent to the crypto universe, such as digital wallets and payment companies. “Usually, we look at traditional financial services companies: banks, payment services, e-wallets. We see ourselves as a bridge between crypto and what we call the traditional financial world. To build that bridge, we have to have a fulcrum on both sides,” CZ said.
Translated from the Portuguese by Adam Critchley
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