Late last fall, there was a time when Changpeng Zhao seemed like the smartest guy in crypto.
The news was unexpected and irreversible: Binance, Zhao's international settlement, announced its intention to acquire its biggest rival, FTX, led by the young American Sam Bankman-Fried, or SBF. It looks like a historic chess move. Not only did Bankman-Fried abandon his once-thriving business, but he continued to sell off what was left of the ailing FTX.
Then, once the deal was announced, it evaporated. Binance canceled the next day, saying "the issues are beyond our control or ability to help." In the year On November 11, FTX crashed, wiping out nearly $1 trillion in global value of all cryptocurrencies and permanently tarnishing the industry's reputation.
Scruffy Silicon Valley kingpin SBF, the son of two Stanford law students, has become one of the most notorious crime suspects in financial history. The growing number of books, television shows, and movies about the FTX fiasco will no doubt solidify SBF's place in culture for years to come. But if you don't follow crypto, you've probably never heard of CZ, even though his business empire and personal fortune are bigger than SBF (as Bankman-Fried, he has the initials Zhao). Unknown CZ has always been the true king of mystery, and the mystery is no accident.
But now, as the leader of the largest and most important exchange in a heavily regulated industry, CZ is more exposed than ever: At the end of March, Binance filed a complaint with the Commodity Futures Trading Commission (CFTC). Plan. Deliberately bring American law. And Binance is already being investigated by the Department of Justice, IRS, SEC and other regulators around the world. The focus that CZ had eluded for so long was finally captured by the SBF explosion.
"CZ is clearly hiding in the shadows," Senator Chris Van Hollen, one of the lawmakers who previously raised concerns about Binance, told me. "It's hard to know where [Binance] works, what they do."
And that's important because the stability of where we park our money is more at risk than ever. "We went through the collapse of SVB, it was a regulated bank, at least there was a review process," Van Hollen said. "We don't know anything about [Binance]. It's a black box. So I'm worried about the possibility of going down. A lot of people are at risk of losing a lot of money.
So who is CZ? And what did he hide?
"[I'm] just a regular guy doing what needs to be done. That's what CZ wrote in a 2018 blog post."
We know that Zhao was born in the late 1970s in a Chinese village called Qingqu in Jiangsu Province. He and his family left the village for Hefei City before immigrating to Vancouver when Zhao was 12 years old. Two months after the Tiananmen Square massacre.
As a teenager, Zhao worked several part-time jobs, including the most famous, a two-year stint at McDonald's, where he said he earned C$4.50 an hour. McDonald's work is an important part of the CZ legend: the fast food chain is something of a meme in the world of cryptocurrencies, a symbol of the fate that awaits unsuccessful day traders.
He then followed in his academic father's footsteps by studying computer science at McGill University in Montreal. After college, he started as a software developer in Bloomberg's business division. Bloomberg's direct manager, CZ, described him as "a smart software technologist with great social skills," but added that he was "not a Wall Street guy" or a "known tech sociopath."
After his time at Bloomberg, CZ moved to Shanghai and founded Fusion Systems, a financial software company. In the year After finding Bitcoin in a poker game in 2013, Zhao immediately sold his place in Shanghai, invested $1 million in Bitcoin, and quit his job at Fusion to join the crypto industry. In the year He spent the next four years at various cryptocurrency startups before joining Binance in China in 2017 with the dream of creating a global hub for digital assets.
The key to the success of the site is that it acts as a stepping stone for the entire industry: if you want to earn Bitcoin or use any kind of crypto-based web application, code it, deposit money and exchange cryptos. With tens of millions of users around the world, Binance is the perfect place to do just that: accessible enough for newcomers and robust analytics for experts. It was an instant hit, generating 120,000 users in the first 45 days. Now this number is 120 million, and Binance is by far the largest crypto exchange. Thanks to his majority stake in the company, CZ is now one of the 60 richest people in the world.
CZ started Binance with a woman named Yi He. A former TV host in China, he managed Binance's venture capital arm last year and a $7.5 billion war chest. She is now the company's director of customer service, being among the minority of women in top positions in crypto. "Forget your gender," she once said in an interview. "Don't focus on being a woman in a man's world. Instead, focus on being a good business person, man or woman." She was also romantically involved with Zhao, and they have two young children, although not much is known about their relationship.
Almost immediately it became clear that the management of Binance follows its own rules. When China started threatening to hit the entire crypto industry a few months after Binance was founded, Zhao simply moved the company to friendly jurisdictions: first, he moved the company's headquarters to Japan, then to Malta. When Malta's regulatory requirements became too strict for Binance, the company escaped again.
During the tax hike, Sam Bankman-Freed befriended politicians and journalists, made strategic donations to both parties, and gave to mainstream outlets such as ProPublica, Semaphore, The Intercept and, in secret, a crypto-media site called The Block. . .
CZ took a cleaner approach. When Forbes released information about Binance's lawsuit to avoid regulation in the United States in 2020, Binance sued Forbes for defamation; A year after the company dropped the lawsuit, Binance announced plans to buy the media giant's stock for $200 million as it prepares to go public. Forbes confirmed to me that the investment would never materialize, plans to go public ultimately fell through, but the announcement was a coup if nothing else: it lacks influence in the courts and favors the mainstream media, as CZ has always done. In fact, pure purchasing power. (Thus, it's no surprise that Zhao is reluctant to talk to mainstream media outlets like Rolling Stone , who, through a Binance representative, declined several interview requests.)
However, CZ is certainly not silent. He thrives on blogging and twitter, talking about high stakes cryptocurrency traders at home, as you can only understand if you've followed him for years. When an anonymous YouTuber spotted the outage on Binance's website, CZ cited a meme in the company's official policy. He showed that he can play.
Although he declined to reveal details about the company's structure, this dynamism of crypto culture has given him some credibility in the industry. As Binance operates from the United States, it is not yet subject to the US regulatory system and is not required to strictly disclose its operations. Although Coinbase claims to be "non-resident", it is still a public company incorporated in Delaware and is legally responsible to its shareholders and customers. Binance, despite having a division in the United States, does not have to comply with the same rules. While you can find Binance offices in places like Paris, Dubai, and Abu Dhabi, there is no doubt that Binance will still be headquartered in 2023. "[Crypto] has different laws in different countries," CZ told Fortune . "So it's not so much that we want to bend or even remove the rules, we want to find more comfortable places." (A Binance spokesperson told me: “We are in the process of a corporate reform aimed at providing greater transparency about our company's regulators.)
It is not known exactly where CZ lives. In fact, in a rare interview earlier this year, he told Fortune Crypto that he splits his time between Paris and Dubai.
"CZ's greatest strength is misunderstanding," said Wilmette University law professor and frequent crypto analyst Rohan Gray. That's all you need to play a game of control. If you are a cowboy who doesn't give a damn about any country, you can play the role of Spaghetti Western.
If hidden betting customers can't tell Binance's physical location, neither can regulators. CFTC Chairman Rostin Behnam said in a March statement related to the lawsuits against Binance: "There is no place or lack of place that prevents the CFTC from protecting investors. Americans".
But now, Aboji has landed on the United States government pass. Last March, Senators Chris Van Hollen (D-MD), Elizabeth Warren (D-MA) and Roger Marshall (R-KA) signed a letter expressing "concern about Binance's role in evading regulators, funneling assets to criminals, and transferring assets to others." Criminals "impersonate sanctions fugitives and hide basic financial information." And the company was quick to say that the letter was based on "false or incomplete" reports and "incorrect assumptions" about the company, a clear sign that lawmakers are turning a blind eye. Binance in the post-SBF era.
Zhao and his companies are still dealing with the fallout from the aborted 24-hour FTX deal. In the year The cryptocurrency world is in crisis, losing the momentum it had in 2021 and early 2022. Companies are dropping their crypto partnerships (remember Instagram NFTs?). And US regulators have launched what they see as a targeted campaign to control the damage caused by FTX and the Bankman-Fried scam.
Part of what worries the regulator is the messy split between Binance and Binance US. In the first two years of Binance's life, all customers were directed to one website, but in 2019, when Binance decided to take a closer look at US-based customers, it created a completely separate entity and stopped American traders from the original Binance. . . The problem with the platform is that its global product (lower fees and a more relaxed user account approach) can theoretically be accessed by anyone from the United States, so a relatively simple technical solution is known as a VPN.
CFTC Commissioner Christy Goldsmith Romero told me. He sees a similar pattern — international companies knowingly or unknowingly jumping around U.S. laws — across the industry, though he declined to comment on the active case at Binance. "I see the same risks and new risks with cryptocurrencies that I saw in 2008. If you want to get the benefits of getting into the US markets, you have to take the necessary steps to get that access, and that requires regulations." CZ Binance, on the other hand, says it will do its best to comply with US laws. As for banning US VPN users from international trading services, Zhao He wrote in a blog post in March that it “doesn’t work.” I know of no other company that uses more comprehensive or efficient systems than Binance.
Not everyone agrees on why Binance was attacked by the US government. For SEC Commissioner Hester Pierce, a Trump appointee and longtime cryptocurrency advocate, the lack of regulatory transparency isn't limited to the private realm of crypto in government. "We're sleeping in the bed we made, meaning we didn't provide a way for parties who wanted to trade cryptocurrency assets to log in and register," I was told. he said. "And if we do, maybe it will answer a lot of questions about where the different jobs are."
But for others, understanding. For lawmakers like Warren and Van Hollen, Binance's actions are a real concern, evidence that they reflect a "brazen attempt to circumvent global financial regulators."
Earlier this year, Zhao tweeted four simple top New Year's resolutions:
2023 tries to make it simple. Spend more time on the little things. The rules.
1. Education
2. Respect
3. Product and service
4. Ignore FUD, fake news, attacks etc.
I'd love for you to link to this post when I post "4" in the future.
The fourth of these pillars: "Ignore FUD, fake news, attacks, etc." - His favorite seems to be: the command to ignore criticism. (FUD, a common initial in cryptography, stands for fear, uncertainty, and doubt.) Since then, it has continued to spread.
"May all four be with you," he wrote on Star Wars Day. “Ignore the FUD. Keep building! Posted in December of last year, when blockchain watchdogs heard warnings that traders were suddenly withdrawing billions of dollars from the platform without explanation, in response to the CFTC's lawsuit, when it was retweeted, CZ tweeted: "Writing the mainstream media. With false confessions."
But when CZ weaves and weaves, the industry holds its breath. CZ is more responsible than Binance, and crypto cannot take another popularity in the entire SBF. "There's the fact that the FTX epidemic has dramatically helped to eliminate some of the more obvious decay, and that the rest of the ecosystem didn't want and was trying to avoid," speculates Rohan Gray. "So CZ has bought a little more time on that front, but I don't think there's any reason to think the underlying health of their business model is any better."
Binance's market share is still large - two-thirds of both cryptocurrency transactions take place on the site - but for Gray, like other analysts, it seems that the period of regulatory relaxation is coming to an end. Amidst these threats, CZ hired defense attorneys Latham & Watkins to personally represent them and added hundreds of employees to Binance's compliance department. The firm's head of financial crime compliance recently told the New York Times that Binance considers itself a technology company, which may help explain its approach. "They break things," he says of the early technological world. "They move fast and break things." "Every business has worked."
But for CZ, it's a matter of stoicism.
"On this journey to financial freedom," he said in response to the CFTC lawsuit, "we don't expect everything to be easy."