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Photo illustration: Annelise Capossela. Photo: Anthony Kwan/Bloomberg via Getty Images

Binance became the largest crypto exchange in the world by perfecting a stateless model that avoided highly-regulated activities. Now, its founder tells Axios that model is doomed.

Why it matters: No industry moves faster than crypto. "When the industry shifts, you’ve got to be willing to abandon your old business," says Changpeng Zhao, or CZ, the billionaire who founded Binance in China in July 2017.

  • Flashback: In early September of the same year, China banned crypto exchanges, forcing Binance out of its country of origin at the age of a month and a half.
  • Since then, Binance has not really had a home, making it naturally aligned with crypto traders who mistrust structures built by nation-states.

The big picture: The uneasy and largely unspoken compromise in most of the crypto world is that national regulators can and will closely monitor all attempts to convert fiat currency into cryptocurrency, or vice-versa: the so-called "on-ramps and off-ramps". Binance is a purely crypto-to-crypto exchange, so it receives no such regulation.

  • Binance still has to deal with regulators, however — a lot of them. That takes a huge amount of time and effort. Meanwhile, it's competing against decentralized exchanges that, per CZ, are at heart just "500 lines of code on the blockchain".

What he's saying: CZ sees being regulated as a potential competitive advantage for Binance, if the company can ever get there. Current crypto investors are satisfied with relying on sophisticated technology, he says; the broad mass of the population, however, "would like to continue to trust a central party" — which is an area where regulators can help a lot.

  • The other side: Binance "cannot compete with" decentralized exchanges that have small teams doing little more than ensuring their code is secure, says CZ. "Their infrastructure is so much smaller. We cannot compete with them, cost-wise, personnel-wise."
  • "The future belongs to decentralized technology," he says. "It’s bearish for the Binance exchange, maybe. But there’s more opportunities in the decentralized space. Our past businesses will not always survive. Our centralized exchange might not exist in 10 or 20 years."
  • CZ is unfazed by the prospect of the demise of the Binance exchange. "It’s extremely bullish for us," he says, "as long as our business continues to evolve with the industry."

The bottom line: CZ wants to move in two directions simultaneously — towards a greater embrace of regulation and regulators, and also towards a greater reliance on decentralized finance protocols. In order for that strategy to succeed, there will need to be a lot more regulation of DeFi than currently exists.

Go deeper

Dan Primack, author of Pro Rata
Oct 6, 2021 - Economy & Business

Indian crypto exchange CoinSwitch Kuber valued at $1.9 billion

Illustration: Aïda Amer/Axios

CoinSwitch Kuber, an Indian crypto exchange, raised $260 million at a $1.9 billion valuation co-led by Andreessen Horowitz and Coinbase Ventures.

Why it matters: All crypto investments are done against the backdrop of regulatory uncertainty, but the situation is even more fraught in India, where there's been government talk of a total ban on both trading and holding.

Ben Geman, author of Generate
2 hours ago - Energy & Environment

Key clean power provision likely won't survive in Dems' spending bill

A construction worker walks along a dirt road at the Avangrid Renewables La Joya wind farm in Encino, New Mexico, on Aug. 5, 2020. Photo: Cate Dingley/Bloomberg via Getty Images

A pillar of Democrats' plans to speed deployment of zero-carbon electricity is likely to be cut from major spending and tax legislation they are struggling to move on a party-line vote, per multiple reports and a Capitol Hill aide.

Driving the news: The New York Times, citing anonymous congressional aides and lobbyists, reports that West Virginia Sen. Joe Manchin (D) has told the White House he "strongly opposes" the Clean Electricity Performance Program.

Updated 4 hours ago - World

Fatal stabbing of British MP David Amess declared a terrorist incident

Police outside Belfairs Methodist Church in Leigh-on-Sea, England, on Oct. 15. Photo: John Keeble/Getty Images

Authorities have declared the death of David Amess a terrorist incident, hours after the Conservative Party lawmaker in the U.K. was fatally stabbed while meeting with local constituents in a church in eastern England on Friday.

The big picture: The Metropolitan Police has found "a potential motivation linked to Islamist extremism."