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What is Binance, why is it in such trouble, and what does it mean for cryptocurrencies?
CNN New York –
There are few figures in the world of cryptocurrencies who have emerged as prominent in recent years as Changpeng Zhao, better known as CZ, and the company he founded in 2017, Binance.
Not only is Binance the largest cryptocurrency exchange in the world, but it is also orders of magnitude larger than its rivals. Until recently, Binance boasted nearly 60% of the market share for spot cryptocurrency trading. Although this share has fallen to closer to 40% Since U.S. regulators ramped up pressure on the company starting in June, no other exchange has come close. According to Seychelles-based OKX, market share is second with 5.44%, while US stock exchange Coinbase is third with 5.37%. Crypto news site CoinDesk.
But Binance’s future at the top of the cryptocurrency world is now far from certain as it faces a record $4.3 billion payment to US authorities to resolve criminal charges.
Zhao resigned as CEO on Tuesday and pleaded guilty to federal money laundering charges. U.S. officials called the settlement the largest corporate resolution ever involving criminal charges for an executive.
Following a multi-year investigation, US authorities said Binance allowed bad actors access to the platform, enabling transactions related to child sexual abuse, narcotics and terrorist financing.
Additionally, according to the Department of Justice, Binance had no protocols in place to flag or report transactions at risk of money laundering, and employees were well aware that such oversight would invite criminals to access the platform. As one compliance staff member wrote, according to court documents: “We need a banner that says ‘we’re washing drug money too much these days – come to Binance, we’ve got cake for you.’”
Zhao faces a maximum of 10 years behind bars, although his ultimate sentence is likely to be much lower. He also agreed to pay a criminal fine of $50 million and a civil penalty of $150 million.
“I made mistakes and I must take responsibility,” Zhao published on X. “This is better for our community, for Binance and for me. Binance is no longer a child. It’s time for me to let him walk and run.
Binance, like its infamous former rival FTX, was quick to point out that it has rapidly grown its business in a chaotic and largely unregulated industry.
“While Binance is not perfect, it has sought to protect users since its inception as a small startup and has made tremendous efforts to invest in security and compliance,” the company said in a declaration Tuesday. “Binance has been growing at an extremely fast pace globally… [and] made bad decisions along the way. Today, Binance takes responsibility for this past chapter.”
It’s a common refrain among crypto firms that find themselves under scrutiny. But federal authorities have made it clear that they have no intention of backing down when it comes to corporate crime, in the cryptocurrency industry or elsewhere.
Analysts see the deal as a partial victory for Binance and Zhao.
“Avoiding prison time for CZ and the exchange’s ability to continue operations, albeit without CZ as CEO, is probably the best outcome given the severity of the allegations against Binance,” said Robert Le, crypto analyst at PitchBook. “Binance’s initial approach of ‘move fast and break things’, which involved offering illegal products or entering markets without proper licensing, led to the current situation.”
The market’s initial response to the Binance news was weak, with Bitcoin down just over 1% on Tuesday afternoon – hardly a blip in the notoriously volatile market.
Investors and entrepreneurs in the crypto space I just want to see the industry move forward from its earliest days of idolatry of the founders.
“The question really is whether cryptocurrency is actually growing in a way that allows it to exist beyond its influential founders who have been driving the brand, driving innovation, driving advocacy for these institutions,” Yesha Yadav said. , professor of law at Vanderbilt University and expert in financial regulation. “This is something that will have to be seen in the next couple of months.”
Yadav points out that the $4.3 billion deal for Binance reflects its status as a systemically important institution, potentially too big to fail.
“What this plea deal does is give Binance a chance to live another day,” Yadav said. “I think this reflects the concern that if Binance were to be killed, it would cause further harm to the average people who hold money on it and to the entire industry.”