WSJ: The largest crypto exchange Binance is going down

After the FTX crash, it seemed that the cryptocurrency world was almost completely in the hands of Binance – but a year later, the world’s largest crypto exchange also found itself in trouble.

The Binance empire is “trembling” under the threat of enforcement actions by US authorities and losing its top managers – at least 1,500 employees have left in the last 3 months alone as the company began to cut costs and prepare for a business downturn.

Despite the fact that Binance is still a major player in the crypto industry, according to Kaiko, the crypto exchange currently processes about half of all cryptocurrency purchase/sale transactions, down from 70% at the beginning of the year.

The fall of a major crypto exchange will have huge consequences for the industry – and although smaller companies will take its place, in the short term, liquidity in the market may evaporate, leading to a sharp decline in the value of tokens.

One institutional trader told The Wall Street Journal that his company had conducted emergency training to quickly withdraw its assets from Binance in the event of a crash.

Yi He, Binance’s co-founder and chief marketing officer, promised that the company would handle the problems in an address to employees last month:

“Every battle is a do-or-die situation, and the only thing that can defeat us is ourselves. We’ve won countless times, and we need to do it again.”

Binance often invests in crypto and other projects, including X, formerly known as Twitter. The company’s co-founder Changpeng Zhao – or CZ, as he is known to X’s 8.6 million followers – is the most famous personality in the cryptocurrency world.

“You just can’t quantify what would happen to the industry if Binance went away, given that it was responsible for a tremendous amount of innovation and growth,” said Anthony Georgiades, general partner at Innovating Capital.

The U.S. Department of Justice has been conducting a multi-year investigation that people in the know say could lead to criminal charges against Binance and Zhao, and billions of dollars in fines.

Binance is also facing a lawsuit from the Securities and Exchange Commission, which claims that the company and Zhao operated illegally in the United States and misused customer funds. The crypto exchange has acknowledged past mistakes, but says that customers’ money is safe and it is committed to complying with regulators.

“We have worked tirelessly not only to learn from the past, but also to continue to invest in teams and systems that ensure user protection,” said the spokesperson.

Binance was launched in China in 2017, although it claims to have no location and employees are scattered around the world. The global website of the crypto exchange is available to traders almost everywhere, but the situation is changing, particularly in a number of European countries.

Activity on the local American exchange Binance.US has virtually disappeared, and the CEO, chief legal officer, and head of risk have recently left the company. A few days before the dismissal, Binance.US CEO Brian Schroder said that the exchange’s revenue had fallen by 70% since the beginning of the year.

Schroder told the staff that Zhao needs to resolve “regulatory issues, transfer his .US holdings to a blind trust, or sell his shares” for the US platform to continue growing. According to him, these steps will allow the company to unblock banking relations and obtain licenses. Zhao is the majority owner of Binance.US and the global exchange.

According to people familiar with the situation, Binance and the Department of Justice have been in talks for months, and there have been discussions within the crypto exchange about whether Zhao should resign.

According to the WSJ, the upheaval in the company has also hit employee morale.

“Some of the dismissed employees were informed about their dismissal 0 days in advance. They simply could not log in. Is this respectful to them? Is there 2 weeks to quit?” one anonymous employee asked Zhao in a public chat (nine others liked it, but the question remained unanswered).

The Department of Justice also initiated an investigation into Binance and possible violations of US sanctions against Russia and questioned the company’s chief compliance officer, Noah Perlman. The pressure from the department was one of the reasons Zhao decided to wind down her business in Russia, once one of her most important markets.

Binance has signed a deal to sell its entire Russian business to CommEX, a crypto exchange, and they confidently stated that they do not belong to Binance, but refused to disclose the names of the owners because they “do not want publicity”

Zhao remained defiant in public:

“We are one community,” he wrote on X the day the Russian executives left the company. “Keep building!”

But sitting in his home in the UAE (which does not have a reciprocal extradition treaty with the United States), Zhao was bringing in new lawyers to handle the Justice Department case, according to people familiar with the situation.