Binance battles regulatory headwinds as world’s largest cryptocurrency exchange seeks financial legitimacy
- ‘We have come to realise that we need a centralised entity to work well with regulators,’ CEO Zhao Changpeng says
- Binance is rebuilding the exchange into a licensed financial institution with centralised headquarters as it attempts to improve ties with regulators
Binance, the world’s largest cryptocurrency exchange, is making a pivot to a licensed financial institution by rebuilding itself into a centralised business, as it navigates through a myriad of regulatory red flags that threatens to set back its past four years’ of growth.
In building a centralised firm with headquarters, the sprawling exchange – with entities incorporated in the Cayman Islands but not for the purpose of running cryptocurrency business – would be disavowing the core ethos of blockchain, the backbone technology of virtual assets which seeks to disintermediate centralised authorities.
Binance CEO explains how the crypto-exchange is charting a path to become a financial institution
But as cryptocurrencies’ market cap has grown to US$2 trillion, too big for regulators to ignore, players that have profited from the cryptocurrency “wild west” in the past can no longer operate by simply hosting their matching engines on the cloud or by operating without a registered office.
“As the largest player in the industry, we need to prepare ourselves for the shift. We are making changes to make it easier to work with regulators,” said Zhao.
Binance is the world’s top cryptocurrency exchange, according to CryptoCompare, which tracks close to 300 cryptocurrency exchanges. The exchange claims to have an average daily trading volume of US$2 billion.
Binance’s former US CEO Brian Brooks, the previous acting comptroller of the currency in the US, resigned in August after just three months in the job. Former chief financial officer Zhou Wei, vice-chairman of LGBTQ social platform Grindr, also resigned.
It recently hired Richard Teng as its Singapore CEO, a former director of corporate finance at the Monetary Authority of Singapore (MAS), where it is seeking a payment services licence.
South Korean eco-friendly toilet turns faeces to digital currency
Debate is also raging about whether cryptocurrencies should be considered as “securities” or means of payment. But Zhao said that bitcoin can be the national currency for smaller nations, pointing to El Salvador’s move to adopt bitcoin and diversify from the US dollar.
This month, El Salvador became the first country in the world to adopt bitcoin as legal tender, on par with the US dollar, the Central American country’s currency since 2001. President Nayib Bukele said the move would help its citizens save some US$400 million in remittance commission a year, a claim that has been disputed by critics.
“Many regulators are concerned about countries that do have a national currency, but smaller countries are probably better off in not having a national currency,” said Zhao. “With finite supply of 21 million and the immutable nature of blockchain, bitcoin possesses a lot of properties of a hard currency that support its use as a national currency.”
With legal backing and support from commercial banks, central bank digital currencies are more likely to be accepted as money, which could potentially marginalise bitcoin, according to industry observers.
However, Zhao said the roll-out of central bank digital currencies could end up helping increase the acceptance of cryptocurrencies.
“Once people start using central bank digital currencies locally, then they’ll use bitcoin to pay their friends in other countries,” he said.