The Binance Story: What Are Papercuts to a Giant?
From Fast-Food Employee to Crypto Titan: Navigating CZ and Binance's Epic Voyage Amidst Regulatory Storms
The Binance ship and her captain Changpeng Zhao (CZ) have outlasted FTX, thwarted countless fear, uncertainty, and doubt (FUD) attacks, and survived a 7,000 BTC hack—all while becoming the biggest company in crypto.
And CZ, ascending from a Lvl. 1 McDonald’s employee all the way to a Lvl. 100 Binance CEO like in one of those dumb mobile games, has steered his ship around countless obstacles (and sometimes through them) on its way to success.
Or, to use another metaphor, Binance is a giant that’s taken 1,000 FUD papercuts and is still trucking. Or maybe CZ is an anime protagonist, and Binance is his massive mecha suit, and his archnemesis Garytas Gensleritor has tried to destroy him with his finishing move, the SEC SLASH—but CZ gets back up every time.
…Anyway.
So what the hell is this article about, Blake? Great question. Today, we delve into the remarkable journey of Binance, casting light on its latest, most challenging obstacle yet—a lawsuit by the Securities and Exchange Commission (SEC). What led us here, what’s happening, and how might it play out?
A Binance Timeline
2017: An ICO and a Dream
Binance launched in 2017 with an initial coin offering (ICO) for its native token, Binance Coin (BNB). The ICO raised just a measly $17M. For context, BNB’s market cap is now almost $38 BILLION—and those are bear market numbers, too. Funny how crypto messes with your concept of monetary value.
Initially based on the Ethereum blockchain, BNB would later be migrated to Binance's proprietary blockchain, now known as the BNB Chain.
The company was founded in China, but moved out of the country within the year in advance of China’s ban on crypto trading.
2018: Expansion and Acquisitions
This was the year that Binance became top dog of the crypto world. After just one year, it had grown to be the biggest exchange in the world, a title it would hold until 2021, when FTX came along and lied to everyone—I mean, *began operating as an exchange.*
2018 was the year that Binance first began really expanding its offerings, bringing tons of new coins to its users for trading. This focus on variety is something the company is well known for even now. Binance also acquired Trust Wallet, a free, non-custodial mobile wallet, in July 2018. The acquisition was part of a broader plan to support Binance's upcoming decentralized exchange (DEX) offering.
2019: DEX Launch and a Brutal Hack
Good news: this year, Binance launched its decentralized exchange (DEX) ahead of schedule, marking a significant milestone in the company's development.
Bad news: in May 2019, Binance experienced its first big security breach when hackers stole over 7,000 Bitcoin (approximately $41 million at the time). CZ was quick to reassure users that Binance would use its reserve funds to cover the losses, tweeting that "Funds are SAFU (Secure Asset Fund for Users).”
Binance also announced plans to launch a trading platform for U.S. customers in partnership with BAM Trading Services in 2019.
The US has had a hot-cold, very mercurial relationship with crypto for a long time. In some ways, the states are great soil for crypto to grow in, but in other ways, it seems the US government explicitly does not want crypto to thrive here. US citizens aren’t able to use many global exchanges because of legal compliance issues, frustrating many users. This has led many companies to create US-specific sub-exchanges—like Binance.US—that are compliant with strict US laws.
By September 2019, Binance.US was live, supporting six cryptocurrencies at launch: Bitcoin (BTC), Ether (ETH), XRP, Bitcoin Cash (BCH), Litecoin (LTC), Tether (USDT), and BNB. This short list of six coins paled in comparison to the 194 tokens that Binance’s main exchange offered that year, but it was better than nothing, and offered a clear (and legal) way for US citizens to trade through Binance.
2020-2021: New Offerings and the Changing of Times
In 2020, Binance made big headlines by acquiring CoinMarketCap, a popular cryptocurrency data provider, for a cool (rumoured) $400 million. This acquisition underscores CZ’s relentless determination to offer users all kinds of services and value as soon as a new trend or opportunity has been identified. It’s that ethos that has set Binance apart from the rest—it’s consistently the first large exchange to hop on Web3 fads and offer new coins and services to customers before anyone else.
Moving along, Binance created Launchpool, a crypto staking platform, later on in 2020. Then in 2021, Binance.US saw some leadership drama with Brian Brooks taking over as CEO in April, only to quit over “strategic differences” in August. Brian Schroder then stepped in as the new CEO. Lots of Brians.
2022-2023: Legal Battles and Market Meltdown
Now we’re reaching current times. Honestly, these two years have been a mixed bag for Binance. In 2022 and 2023, Binance.US attained a $4.5 billion valuation, but faced a major hack, regulatory scrutiny, and lawsuits by the CFTC and SEC for offering unregistered products and alleged violations. The papercuts have gotten much larger now—can the giant keep pushing forward, or will it be taken out by the regulatory assault it faces?
In 2022, Binance also stopped supporting USDC in favor of BUSD, its native stablecoin, after USDC depegged from its dollar value. But the following February, Paxos, the company that minted BUSD for Binance, got hit with an investigation by the New York Department of Financial Services (NYDFS) and a Wells Notice from the SEC—and Paxos had to stop minting BUSD. So no more new stablecoins for Binance.
Then in March of this year, the Commodity Futures Trading Commission (CFTC) sued Binance and CZ for offering unregistered crypto derivatives.
And now, Binance is staring down the barrel of another lawsuit—this one straight from the SEC itself, for reasons similar to the CFTC suit. This completes our history lesson; thou hast been brought up to speed.
The SEC vs. Binance
Now, with all of that context in mind, we get to the meat. Here’s a breakdown of the SEC’s lawsuit against Binance:
The SEC’s Allegations
The SEC is suing Binance because it claims that the company failed to register as a clearing agency, broker, and exchange—and that Binance allowed commingling of customer funds. It also claims that CZ "secretly" controlled Binance.US and inflated Binance.US's trading volume, and that the exchange was offering unregistered securities.
The suit also alleges that Binance illegally allowed U.S. customers to trade on its platform. According to the SEC, Binance supposedly assisted high-value U.S. customers in getting around barriers to their platform instead of directing them to use Binance.US (which has way fewer coins available for trading and, importantly, no access to leverage trading).
The suit goes on to claim that CZ personally received $62.5 million from a Binance bank account and that a CZ-controlled entity purchased an $11 million yacht from a customer funds account. Wild.
More weird co-management allegations: the SEC says that Binance (main company) had access to Binance.US's wallets, assets, and private keys, creating conflicts of interest and boosting trading volume on Binance.US.
Binance and CZ’s Response
Binance.US labeled the lawsuit as "the latest example of regulation by enforcement," describing it as "baseless."
Binance published a statement on its blog asserting that they had actively cooperated with the SEC's investigations, had made efforts to answer their questions and address their concerns, and had worked toward a settlement.
CZ, for his part, responded with a tweet that simply said "4," referencing another tweet from some months ago outlining his 4 principals for approaching life/business in 2023—the fourth one being “Ignore FUD, fake news, attacks, etc.” (He references this often.)
Binance stated that any allegations of user assets on the Binance.US platform being at risk were wrong and unjustified.
They said that all user assets on Binance and its affiliate platforms, including Binance.US, were safe and secure. They pledged to vigorously defend" against any allegations to the contrary.
What Happens if the SEC Wins?
Regulatory Oversight: This is the big one—this lawsuit could lead to increased regulatory scrutiny not only for Binance but for the entire crypto industry. It could prompt Big Brother worldwide to take a closer look at the practices of crypto exchanges and other businesses, probably leading to more “regulation by enforcement.” Many are speculating that the SEC is trying to bully crypto-native companies out of the industry to make way for TradFi firms like Blackrock to take over, and a big, fat Binance L would be the perfect opportunity to start it all off. I mean, just look at the slew of new Bitcoin ETF filings from this month. They’re definitely moving in.
Regulatory Penalties: If Binance and CZ are found guilty of the alleged securities violations, they could face major financial penalties.
Reputation Damage: Regardless of the outcome, the lawsuit can have reputational consequences for Binance (and likely already has). Investors, users, and partners may lose trust in the company.
As for how all of that could play out, it largely depends on the evidence presented and how well Binance and CZ can defend against the charges. They could potentially reach a settlement with the SEC, which might involve paying fines and agreeing to certain operational changes. However, if they choose to fight the charges in court and lose, they could face far more severe penalties and restrictions. Regardless of the specific outcome, this case is likely to set a precedent for how crypto companies are regulated in the U.S., and everyone’s certainly got their eye on it (and on the SEC’s Coinbase lawsuit, too).
Closing Thoughts
In the grand drama that is the world of crypto, Binance and CZ are living proof that the protagonist's journey is often fraught with challenges and trials. The recent lawsuit by the SEC marks a pivotal and dramatic climax in their storyline. But if their past is anything to go by, they've repeatedly demonstrated a knack for resilience and adaptation, akin to a shonen anime hero who constantly powers up and evolves to meet whatever new villain steps into their path. Alright, enough with the anime comparisons.
As we conclude this dive into the Binance saga, it's clear that the cryptocurrency space is still a rapidly developing Wild West-esque landscape—one that is constantly reshaped by the dynamic interplay of innovation, regulation, competition, and sometimes litigation.
What is also clear is that the industry's major players, Binance included, are not backing down from these challenges. Instead, they are continually pushing the boundaries, innovating, and exploring new ways of providing value to their users, even as they navigate through these murky regulatory waters.
While Binance and CZ face a colossal challenge with this SEC lawsuit, history suggests that they will respond with the same tenacity that has made Binance one of the biggest companies in crypto. Whether the giant will be slain by these paper cuts remains to be seen. Regardless, the outcome will undeniably have huge implications for the industry, setting the stage for the next episode of the saga. So, stay tuned, dear reader, because one thing is for sure—there’s never a dull moment in the world of crypto.