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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

Felix Salmon, author of Capital
Nov 20, 2021 - Economy & Business

A billionaire's crypto win

People take pictures of a copy of the U.S. Constitution during an auction at Sotheby's last night. Photo: Yuki Iwamura/AFP via Getty Images

The story of a group of cryptocurrency traders failing to buy a copy of the Constitution shows just how much of a gulf there still is between the real world and the crypto world.

Driving the news: Hedge fund billionaire Ken Griffin outbid a group of 17,437 donors in an auction at Sotheby's last night, promising to pay $47.4 million for the document.

Updated 3 hours ago - World

UK government: Kremlin has plan "to install pro-Russian leadership" in Ukraine

British Foreign Secretary Elizabeth Truss. Photo: Gints Ivuskans / AFP via Getty Images

The United Kingdom's Foreign Secretary on Saturday night said the government has "information that indicates the Russian Government is looking to install a pro-Russian leader in Kyiv as it considers whether to invade and occupy Ukraine."

Driving the news: U.S. National Security Council spokeswoman Emily Horne called the intelligence "deeply concerning" in a statement to Axios. The Biden administration has said Russia is actively manufacturing a pretext for invasion and warned that Putin could use joint military exercises in Belarus as cover to invade from the north.

Updated 4 hours ago - Science

This powerful new accelerator looks for keys to the center of atoms

Illustration: Eniola Odetunde/Axios

Nuclear physicists trying to piece together how atoms are built are about to get a powerful new tool.

Why it matters: When the Facility for Rare Isotope Beams begins experiments later this spring, physicists from around the world will use the particle accelerator to better understand the inner workings of atoms that make up all the matter that can be seen in the universe.