Introduction
In the fast-moving, often chaotic world of cryptocurrency, few companies have made as big an impact in as short a time as Binance. Since its founding in 2017, Binance has become synonymous with the crypto boom, emerging as the world‘s dominant digital asset exchange and a key driver of innovation in the space.
Binance‘s eye-popping growth can be seen in just a few key metrics:
| Metric | 2017 | 2021 |
|---|---|---|
| Daily Trading Volume | <$100 Million | >$75 Billion |
| Registered Users | <1 Million | >28 Million |
| Supported Cryptocurrencies | <50 | >350 |
| Countries Served | <50 | >180 |
Sources: Binance, CoinGecko
But to understand how Binance became the 800-pound gorilla of crypto virtually overnight, we need to go back to the beginning – to the vision of one entrepreneur who saw the potential of blockchain technology before almost anyone else.
CZ: The Coding Wunderkind Turned Crypto Mogul
Changpeng Zhao, better known as CZ, didn‘t take the typical path to tech billionaire status. Born in China to academic parents, CZ moved to Canada at age 12 when his father accepted a visiting professorship in Vancouver. An outsider in an unfamiliar land, CZ threw himself into computers as an escape, learning to code on an old IBM PC.
That early passion bloomed into prodigious talent – CZ was winning coding competitions by high school and even developed a popular exchange matching engine called "Flash Trader" while at McGill University. After cutting his teeth at Bloomberg‘s Tradebook building futures trading systems, CZ founded his own company, Fusion Systems, to create ultra high-performance trading software for brokers.
But it was in 2013, when CZ took a role at crypto wallet provider Blockchain.info, that the course of his life would change forever. Falling down the Bitcoin rabbit hole, CZ became convinced that cryptocurrency represented the future of money and a once-in-a-lifetime opportunity. After a brief stint as CTO of OKCoin, CZ decided to go all in, liquidating his assets and pouring his life savings into starting his own crypto exchange.
Binance is Born
Binance launched in July 2017 with an ambitious goal – to make trading cryptocurrencies easy and accessible for the masses. The Binance platform offered a clean, intuitive interface, deep liquidity, and expansive coin coverage that immediately resonated with crypto‘s burgeoning retail investor class.
Binance‘s timing was impeccable. 2017 saw an unprecedented crypto bull run, with the total market cap of all digital assets soaring from $18 billion to over $600 billion. Bitcoin led the way, rocketing from under $1,000 to nearly $20,000, but it was the explosion of new altcoins and initial coin offerings (ICOs) that really fueled the mania. And Binance was perfectly positioned to capture that demand as the go-to venue for trading the hottest new tokens.
One of Binance‘s key early innovations was the issuance of its own eponymous token, the Binance Coin (BNB). An ERC-20 token on the Ethereum blockchain, BNB could be used to pay trading fees on Binance at a discounted rate. But more importantly, it aligned incentives between the exchange and its users, giving BNB holders a stake in Binance‘s success.
Binance raised $15 million in its initial coin offering (ICO) for BNB, but the real payoff would come from the token‘s meteoric secondary market appreciation. From an ICO price under 50 cents, BNB soared to over $20 by the end of 2017, making it one of the best performing cryptoassets of the year. BNB‘s rise mirrored that of Binance itself – by January 2018, just six months after launch, Binance was the world‘s largest crypto exchange with over $1 billion in daily trading volume.
Regulatory Arbitrage and Global Expansion
Binance‘s early success brought increased scrutiny from regulators, who worried the exchange was enabling money laundering, tax evasion, and other illicit activities. Operating in the gray area between different countries‘ legal frameworks, Binance engaged in a form of regulatory arbitrage – shifting its base to whichever jurisdiction offered the most welcoming environment.
Originally headquartered in China, Binance moved its servers and operations to Japan in September 2017 after the Chinese government cracked down on domestic crypto exchanges. But when Japan‘s Financial Services Agency (FSA) warned Binance it was operating without a license, the exchange once again pulled up stakes, this time moving to Malta. Dubbed the "Blockchain Island" for its crypto-friendly policies, Malta became Binance‘s de facto headquarters.
But even as it played cat-and-mouse with regulators, Binance continued its aggressive global expansion. The company launched fiat-to-crypto exchanges in Uganda, Jersey, Singapore, South Korea, and the United States, enabling customers to buy digital assets with traditional currencies. It acquired CoinMarketCap, the most popular (and sometimes controversial) source of crypto pricing and market data. And it rolled out new features like margin trading, crypto lending, and a DEX (decentralized exchange).
Perhaps the biggest move was the September 2019 launch of Binance.US, a fully regulated sister exchange for American customers. With the SEC breathing down its neck, Binance was forced to geofence its main platform, blocking U.S. users (and anyone accessing via a U.S. IP address). Binance.US was the solution, offering a narrower selection of trading pairs in compliance with the country‘s strict securities laws.
Today, Binance‘s sprawling empire straddles every corner of the cryptoverse. The core Binance exchange remains the market leader, with over $40 billion in daily spot volume. Binance Futures is the largest crypto derivatives platform, regularly processing $60 billion+ in daily volume. And Binance Smart Chain has emerged as the main challenger to Ethereum for DeFi (decentralized finance) development, with $17 billion in total value locked (TVL) across 400+ DApps (decentralized applications).
Sources: CoinGecko, DeFi Llama, Binance
Trials and Tribulations
For all its successes, Binance‘s journey has been far from smooth sailing. The exchange has weathered several major crises that have tested both its technology and its leadership.
Perhaps the most serious was the May 2019 security breach, in which hackers stole over 7,000 BTC (worth approximately $40 million at the time) from Binance‘s hot wallets. Binance made users whole through its Secure Asset Fund for Users (SAFU) but the incident was still a black eye for an exchange that prided itself on its security. In the wake of the hack, Binance overhauled its security practices, implementing mandatory 2FA, upgrading its multi-sig wallet architecture, and increasing its SAFU balance to $1 billion.
On the regulatory front, Binance has been in the crosshairs of numerous agencies worldwide. In April 2021, Germany‘s financial watchdog BaFin warned that Binance could be fined for offering digital tokens without publishing an investor prospectus. That same month, Japan‘s FSA issued another warning to Binance for operating without registration. And in June, the UK‘s Financial Conduct Authority (FCA) ordered Binance to halt all UK regulated activities, stating the firm was "not capable of being effectively supervised."
Perhaps most damaging were the allegations, published in a bombshell October 2020 Forbes article, that leaked documents showed Binance had "an elaborate corporate structure designed to intentionally deceive regulators" and surreptitiously profit from U.S. investors. Binance has disputed the claims, but the article added to a growing perception that the exchange was playing fast and loose with the rules.
To address these concerns, Binance has taken steps to beef up its compliance, including hiring former FATF (Financial Action Task Force) executives to oversee its AML programs and geofencing its services to exclude restricted jurisdictions. But with investigations by the U.S. Department of Justice and IRS into potential money laundering and tax crimes still ongoing, regulatory risk remains a major challenge for the company.
Coinbase Comparison
While Binance is undoubtedly the biggest crypto exchange, it‘s not without competition. Perhaps its most formidable rival is Coinbase, the San Francisco-based exchange that went public in a direct listing in April 2021.
Coinbase and Binance have taken markedly different approaches to the market. Whereas Binance has embraced a "Wild West" ethos of rapid international expansion and minimal oversight, Coinbase has positioned itself as the regulated, trustworthy face of crypto. Coinbase is licensed in 40 U.S. states and fully compliant with SEC regulations. It custodies over $90 billion in institutional assets and has never been hacked.
This divergence can be seen in the exchanges‘ respective financials:
| Metric (Q3 2021) | Binance | Coinbase |
|---|---|---|
| Trading Volume | $789 billion | $327 billion |
| Revenue | $1-2 billion (est.) | $1.2 billion |
| Net Income | $800 million-$1.2 billion (est.) | $406 million |
| Assets on Platform | $70-80 billion (est.) | $255 billion |
| Verified Users | 28.6 million | 73 million |
Sources: CoinGecko, The Block, Coinbase Shareholder Letter
As the table shows, Binance dwarfs Coinbase in trading volume – processing 2.4x as many transactions. However, Coinbase generates much more revenue per trade, thanks to its higher fees and premium offerings like institutional custody. It also has a much larger verified user base, although it‘s unclear how many are active traders.
Perhaps most tellingly, Coinbase has nearly 3x as many assets custodied on its platform, despite doing less than half the trading volume. This points to Coinbase‘s success in attracting institutional investors and high net worth individuals, who feel more comfortable storing their crypto with a publicly traded, regulated entity.
Conclusion
In just five short years, Binance has become crypto‘s center of gravity – a sprawling, globe-spanning empire processing trillions of dollars in annual volume. Under CZ‘s leadership, Binance has relentlessly innovated, out-hussling rivals to build the industry‘s most liquid and feature-rich exchange. And with its expansion into DeFi, NFTs, and other frontier sectors, Binance is well-positioned to maintain its dominance as crypto matures.
However, Binance‘s "move fast and break things" approach has also drawn the ire of regulators worldwide. As authorities step up enforcement and demand greater transparency, Binance will need to find a way to balance its growth with compliance, or risk being shut out of key markets.
Coinbase offers a glimpse of what a regulated, institutional-friendly Binance might look like. While CZ has scoffed at Coinbase‘s more conservative approach, there‘s no denying the upstart‘s success in winning over the Wall Street crowd. As crypto becomes more mainstream, Binance may need to borrow a page from Coinbase‘s playbook.
Ultimately though, one suspects CZ wouldn‘t have it any other way. Binance‘s agility and willingness to push boundaries are what got it to the top of the crypto hierarchy. In an industry where change is the only constant, standing still is not an option. As CZ has said, "Compliance is a journey." Expect Binance to keep running full speed ahead.
