There are few figures in crypto that have loomed quite as large in the past few years than Changpeng Zhao — better known as CZ — and the company he founded in 2017, Binance.
Not only is Binance the world’s biggest crypto exchange, it is orders of magnitude larger than its rivals. Up until recently, Binance boasted nearly 60% of the market share for crypto spot trading. Even as that share has waned to closer to 40% since US regulators amped up pressure on the company starting in June, no other exchange even comes close. The Seychelles-based OKX is second in market share at 5.44% and the US exchange Coinbase is third at 5.37%, according to crypto news site CoinDesk.
But Binance’s future at the top of the crypto world is now far from certain as it faces a record $4.3 billion payout to US authorities to resolve criminal charges.
Zhao on Tuesday resigned as CEO and pleaded guilty to federal money laundering charges. US officials called the settlement the biggest-ever corporate resolution involving criminal charges for an executive.
Following a multiyear investigation, US authorities said Binance allowed bad actors on the platform, enabling transactions linked to child sex abuse, narcotics and terrorist financing.
Further, Binance did not have protocols to flag or report transactions for money laundering risks, according to the Justice Department, and employees were well aware that such an oversight would invite criminals to the platform. As one compliance staffer wrote, according to court documents: “we need a banner ‘is washing drug money too hard these days - come to binance we got cake for you.’”
Zhao faces a maximum of 10 years behind bars, though his ultimate sentence will likely be far lower. He also agreed to pay a $50 million criminal fine and a $150 million civil penalty.
“I made mistakes, and I must take responsibility,” Zhao posted on X. “This is best for our community, for Binance, and for myself. Binance is no longer a baby. It is time for me to let it walk and run.”
What it means for crypto
Binance, like its infamous former rival FTX, has been quick to point out that it grew its business rapidly in a chaotic, largely unregulated industry.
“While Binance is not perfect, it has strived to protect users since its early days as a small startup and has made tremendous efforts to invest in security and compliance,” the company said in a statement Tuesday. “Binance grew at an extremely fast pace globally… [and] made misguided decisions along the way. Today, Binance takes responsibility for this past chapter.”
It’s a common refrain among crypto firms who find themselves under scrutiny. But federal authorities have made clear that they’re not going to pull any punches when it comes to corporate crime, in crypto or elsewhere.
Analysts see the settlement as a partial victory for Binance and Zhao.
“The avoidance of prison time for CZ and the ability for the exchange to continue operations, albeit without CZ as its CEO, is likely the best outcome given the severity of the accusations against Binance,” said Robert Le, crypto analyst for PitchBook. “Binance’s initial ‘move fast and break things’ approach, which involved offering products that were illegal or entering markets without proper licenses, has led to its current predicament.”
The initial market response to the Binance news was muted, with Bitcoin slipping just over 1% Tuesday afternoon — hardly a blip in the notoriously volatile market.
Investors and entrepreneurs in the crypto space just want to see the industry move on from its early days of idolizing founders.
“The question really is whether or not crypto is actually growing up in a way that is allowing it to have an existence beyond its influential founders who have been shepherding the brand, shepherding the innovation, shepherding the advocacy for these institutions,” said Yesha Yadav, a law professor at Vanderbilt University and an expert on financial regulation. “That’s something that will have to be seen over the next couple of months.”
Yadav notes that the $4.3 billion deal for Binance reflects its status as a systemically important institution — potentially too big to fail.
“What this plea deal does is give Binance as a chance to live another day,” Yadav said. “I think that reflects a worry that if Binance were to be killed, that would cause further damage to average folks who hold money on it to the industry as a whole.”
