After losing their founder and CEO and paying the largest fine in crypto history, Binance has started a new chapter of operations. But what does this mean for Binance investors, especially as founder CZ has been replaced with the relatively unknown Richard Teng?
In our view, Binance is at an inflection point similar to that faced by Uber when its controversial founder Travis Kalanick left the firm, to be replaced by the more “grown-up” CEO Dara Khosrowshahi. He was the right CEO at the right time, as we’ll unpack below.
This is our research on the present and future of Binance, the ripple effect of the change in leadership, and what that might mean for long-term BNB investors and enthusiasts alike.
The Uber Story
As an analogy, it may help to revisit the story of Uber.
In its early days under founder Travis Kalanick, Uber was a brazen disrupter, cutting corners, playing fast and loose with the rules, and clashing with regulators to conquer the legacy taxi industry.
Kalanick was a fan of aggressive expansion, legal battles, and a cutthroat “win at all costs” mentality. Success was the goal, even it meant bending the rules, pushing employees, or facing scandals.
The rapid growth came at the price of a toxic culture, marred by accusations of sexism, sexual harrassment, and unethical practices. (There’s even a Wikipedia page on Uber controversies.)
Bowing to investor and government pressure, the board pushed out Travis Kalanick in 2017, and brought in CEO Dara Khosrowshahi, who was the antithesis of Kalanick’s firebrand style.
Khosrowshahi inherited a company reeling from controversies, facing the daunting task of cleaning house. He emphasized transparency, accountability, and mending relationships with drivers, regulators, and the public.
He apologized for past mistakes, revamped Uber’s culture, and prioritized ethical business practices.
Change did not happen overnight. But Khosrowshahi made a conscious move towards “growing up” – navigating challenges with diplomacy, building trust, and focusing on sustainable success rather than reckless growth.
While Uber still faces hurdles, Khosrowshahi’s leadership paved the way for a more mature company, aiming to navigate the future with responsibility and a renewed focus on its stakeholders.
Looking at the history of Binance under its founder CZ and its new CEO Richard Teng, it’s hard not to make comparisons with Kalanick and Khosrowshahi.
Binance’s Aggressive Growth Under CZ
Binance started its journey in China, a young crypto exchange emerging as the initial coin offering (ICO) craze peaked in 2017. Binance would soon beat out their competition thanks to their founder Changpeng Zhao, a.k.a. “CZ,” a young and ambitious executive.
Six months after the launch, Binance had already become the world’s largest crypto exchange by trading volume. Users have praised Binance for its intuitive interface, diverse selection of digital assets, and low fees.
Since its impressive beginnings, Binance has grown rapidly into a broad ecosystem that comprises a public blockchain with a native coin (BNB) and a wide range of services, including a digital wallet, a stablecoin, a futures trading platform, an NFT marketplace, and more.
Because of this, CZ has become one of the richest men on the planet, matching the likes of Mark Zuckerberg at his peak in terms of net worth.
CZ was the mastermind behind Binance’s rapid development, but the company has to move on without him following a dramatic legal battle with US regulators.
End of CZ Era: Major Upheaval at Binance
In 2019, Binance launched their American branch to serve US clients–a move that would open the door for regulators to notice a trail of unsettling and illegal activities.
In June 2023, the SEC filed a complaint listing 13 charges against Binance, the US branch, and CZ himself, accusing them of operating a “web of deception.” In November of the same year, the US Department of Justice (DoJ) announced three criminal charges against the company, stressing:
- Conspiracy to violate the Bank Secrecy Act (BSA) by failing to implement an effective anti-money laundering (AML) program.
- Operating an unlicensed money services business.
- Violating the International Emergency Economic Powers Act (IEEPA) by avoiding sanctions.
CZ pleaded guilty to money-laundering charges, and Binance agreed to pay $4.3 billion in settlements – the largest penalty for a crypto firm in US Treasury and FinCEN history. Secretary of the Treasury Janet L. Yellen stated:
“Today’s historic penalties and monitorship to ensure compliance with US law and regulations mark a milestone for the virtual currency industry. Any institution, wherever located, that wants to reap the benefits of the U.S. financial system must also play by the rules that keep us all safe from terrorists, foreign adversaries, and crime, or face the consequences.”
As a result, Binance had to leave the US market, and CZ resigned as CEO. The company then appointed the relatively unknown Richard Teng as its new chief.
Who is Richard Teng?
Richard Teng, a native of Singapore, has more than three decades of financial services and regulatory experience, which may bode well for the company’s new chapter – which is expected to be defined by compliance.
Born in 1971, Teng is a distinguished alumnus of Nanyang Technological University and the University of Western Australia, holding a Bachelor’s in Accountancy and a Master’s in Applied Finance.
He began his career at PricewaterhouseCoopers before joining the Monetary Authority of Singapore (MAS) in 1997, where he contributed significantly to developing Singapore’s financial sector. Later, as the Chief Regulatory Officer at the Singapore Exchange (SGX), he played a crucial role in policy formulation and regulatory compliance.
In 2015, he became chief of Abu Dhabi Global Market’s (ADGM) Financial Services Regulatory Authority (FSRA), one of the first regulators to develop a crypto framework.
Teng was appointed CEO of Binance Singapore in August 2021. In May 2023, he was promoted to regional head of Asia, Europe, and MENA.
Teng’s extensive regulatory experience positions him as an excellentl candidate to help the company navigate its regulatory challenges. CZ praised the new CEO, calling him a “highly qualified leader.” Even so, Teng takes the helm of Binance at a challenging time for the firm.
While some investors are concerned about the void left by CZ’s departure, Teng has quickly reassured the crypto community that the platform would continue to be user-oriented, focusing on the security of funds and ease of use.
The CEO expressed the company’s commitment to regulatory compliance across the globe. He admitted Binance’s current regulatory hurdles and brought on board new team members with regulatory experience, expressing his readiness to collaborate with regulators across jurisdictions to ensure compliance and meet global standards.
Binance is still the world’s largest crypto exchange by far. Teng could be the “grown-up in the room” that the company needs to maintain its leading position by securing strategic partnerships and productive relationships with regulators.
The New Binance: Finances and Compliance
Binance is not a public company. They don’t share details of revenue and other finances. Still, the company releases an annual report with some key metrics.
In the latest edition, Binance claims they have added 40 million more users in 2023, up 30% to 170 million users. Their emergency SAFU (Secure Assets for Users) fund is valued at $1.2 billion.
Per their Proof of Reserve report, the company claims that the crypto assets Binance holds in custody fully cover users’ net balances:
Throughout 2023, the company continued engaging with regulators worldwide and meeting standards for their operating jurisdictions. As it stands, Binance holds licenses, registrations, and authorizations in 18 jurisdictions across the world, including Japan, Australia, France, Italy, Spain, and Mexico.
In 2023, the company invested over $210 million in their compliance program, up 35% from the previous year. Also, Binance processed 58,000 law enforcement requests versus 50,000 in 2022.
Coinbase is Coming for Binance
The biggest winner of the Binance saga is Coinbase, the largest crypto exchange in the US, which has the chance to expand globally at the expense of weakening Binance.
Ironically, this is the second time Binance has “helped” Coinbase. In 2022, CZ brought down FTX, then the second-largest crypto exchange operator, due to a longstanding rivalry between the firms.
Later, when Binance pled guilty to its own DoJ charges, Coinbase CEO Brian Armstrong took to X (formerly Twitter) to stress that his company had taken a long-term view and had spent a lot to ensure compliance. He said:
“Today’s news reinforces that doing it the hard way was the right decision. We now have an opportunity to start a new chapter for this industry.”
Coinbase saw their share price surging after the news, gaining 100% in a few weeks to hit the highest level in about 18 months.
Meanwhile, at the end of November 2023, Binance saw the biggest outflow on record when about $1 billion worth of crypto left the exchange. Still, this wasn’t a mass exodus, and Binance still appears to have plenty of liquidity.
The Future
Teng faces significant challenges as the company prioritizes transparency and compliance across multiple jurisdictions.
Binance hasn’t even sorted out all its challenges in the US, as they still have an ongoing legal fight with the SEC looming in 2024.
The company must respond to accusations of listing tokens deemed unregistered securities by the SEC, artificially inflating trading volumes, failing to restrict US users, misleading investors about market surveillance, and diverting user funds, among others.
The company also struggles in Europe, as the MiCA framework goes into practice in 2024.
Binance was forced to give up registration with a Cyprus regulator and failed to obtain a license in the Netherlands. The company also withdrew applications for regulatory approval in countries like Germany and Austria.
In the future, Binance will likely focus on the Asian and MENA markets where it has a stronger presence. It remains to be seen if the exchange maintains market share in the US and Europe.
Investor Takeaway
Binance is at an inflection point. Like Uber trading in Kalanick for Khosrowshahi, the company has traded in CZ for Teng. Our hope is that, like Khosrowshahi, Teng can be the grown-up in the room.
Teng has extensive regulatory experience, a global perspective and collaborative approach, and a focus on user security and compliance. He has also been with the company for years, so he potentially has the knowledge and relationships to run the company well.
However, he has a limited public profile, especially compared to the Twitter-friendly CZ. He is untested in crisis management at the CZ level. And compliance may come at the expense of innovation: it’s possible to become too careful, and Binance may lose its lead as a result.
We’ve argued that the company’s settlement with the DoJ was the best $4.3 billion they could have spent, as CZ is not in jail and Binance continues to operate. The settlement lays to rest one U.S. headache, though the SEC case is still looming.
For long-term BNB investors, Binance remains a dominant force in the crypto space:
However, Binance is losing market share. Their dominance started to decline even before the DoJ settlement:
Will Richard Teng, the grown-up in the room, be enough to steer Binance through regulatory hurdles and regain its lost dominance, or will Coinbase and other compliant players capitalize on its missteps?
Only time will tell, but the coming year promises to be a pivotal one for the crypto giant. And in the meantime, we’re holding our BNB.
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