Changpeng Zhao, aka CZ, cofounder and CEO of Binance, and I kicked off the Ethereal Virtual Summit with a fun fireside chat! He talked about Binance’s current operations, its plans for the future, and the crypto industry as a whole. He explains:
- Why he thought the questions I asked him in our first interview were misleading
- Whether Libra’s new plans are affecting Binance’s strategy for Venus
- What impact China’s DCEP will have on crypto
- Why the confluence of circumstances caused by COVID are a “perfect storm” for crypto, and how this will affect crypto in the long-term
- Whether the Binance Smart Chain will leech away Ethereum developers and users
- Why he thinks competition in the industry only grows it
- How Binance can own CoinMarketCap without affecting its objectivity
- What he says to the class-action lawsuit against Binance, him and the other cofounders of Binance accusing them of offering unregistered securities
- How he views the role of Binance in governance in delegated proof-of-state systems, such as when Binance flip-flopped on a contentious hard fork in Steem
- Where Binance is headquartered
Thank you to our sponsors!
Binance announcement about BUSD: https://binance.zendesk.com/hc/en-us/articles/360032604131-Binance-Announces-Open-Blockchain-Project-Venus-
Venus as the One Belt, One Road initiative of Libra: https://twitter.com/DoveyWan/status/1163364542233006082?s=20
Venus focusing on developing countries: https://www.coindesk.com/binance-is-pitching-its-stablecoin-as-a-government-friendly-libra-competitor
Binance’s acquisition of CoinMarketCap: https://www.coindesk.com/binances-coinmarketcap-acquisition-is-a-bet-that-crypto-really-is-for-the-masses
The Block report on BNB’s latest token burn: https://www.theblockcrypto.com/genesis/62306/a-closer-look-at-binances-bnb-burns
Lee et al. vs. Binance: https://www.scribd.com/document/455203877/Lee-et-al-vs-Binance
Estimate that Binance earned $46 million in profit in 2018:
Binance used Steem tokens on its exchange to help vote out Steem validators: https://steempeak.com/witness/@ura-soul/ura-soul-witness-update-anarchy-vs-empire-tron-replaces-top-witnesses-and-takes-over-the-steem-blockchain
CZ’s initial tweet about the how Binance handled the Steemit fork: https://twitter.com/cz_binance/status/1234565384327585792?s=20
Binance not authorized to operate in Malta: https://www.theblockcrypto.com/linked/56603/binance-is-not-authorised-to-operate-in-malta-says-the-countrys-financial-regulator
CZ on Binance not being based in Malta and decentralized: https://twitter.com/cz_binance/status/1230860647086338048
Binance shut down Shanghai offices: https://www.theblockcrypto.com/post/47922/binances-shanghai-office-shut-down-following-police-raid-sources-say
Links to topics we did not have time to cover:
Binance removes all references to Visa from its credit card: https://www.theblockcrypto.com/post/60886/binance-quietly-scrubs-visa-mentions-from-its-payment-card-website
Investment in startups in Africa: https://www.coindesk.com/binance-backed-crypto-payments-app-as-race-for-africa-heats-up
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Hey, CZ, how are you? It’s nice to actually have an interaction face to face.
Yes, I think last time we talked was just over the phone, or, yeah, we didn’t get to see each other sort of visually.
No, no, we didn’t. So, before we keep chatting, I just want to say to everyone, welcome to the kick-off talk for Ethereal, which will be this fireside chat that I’m conducting with Changpeng Zhao, a.k.a. CZ, who’s the CEO of Binance, and if you don’t know who I am, I am the host of a couple crypto podcasts, Unchained and Unconfirmed. Welcome, CZ.
Thank you for having me here.
So, in your tweet yesterday about our chat, you said that last time I interviewed you, I asked you tough, bordering-misleading questions, and I wondered what questions in particular did you take issue with?
Well, you asked me if I was worried about going to jail. I mean, who asks that, right?
Well, but I do think, I mean, my questions about US regulations, I think, at least, were on point, because, you know, since the time of our interview, now Binance has changed its approach to the US. And I remember last time when I was asking you all about the US regulations, you said that my line of questioning was like telling somebody who didn’t like hot weather that they had to live in the US, or live in Florida. And you said, you know, that, like, that was ridiculous, but apparently now you’ve decided that even though you don’t like hot weather, you will come to Florida.
So, now you have Binance US, which is specific to the US market, and obviously its unique regulations, I guess we could call them, and even within that, there’s Binance USD, which is approved by the New York State Department of Financial Services, which is easily one of the toughest crypto regulators. So, it seems that I was right, that the way Binance was operating was not really in line with US regulation. Would you agree with that, and that’s why you launched Binance US?
So, again, I think I will have to disagree with that line of questioning, but I think your question is worded in a misleading way. It’s just that, okay, because not every company starts in the US, and we didn’t start in the US. We wasn’t targeting the US customers specifically, but we got to a point we’re big enough. Getting regulated in the US is really expensive. It’s, like, I don’t know, 48 states, you have to get licenses with, with, I think our partner’s still going through that process.
It’s very time-consuming. So, but at a certain size, we said, well, the US market is a important market, and we want to be able to service our market. So, we partnered with BAM Trading Services, and as far as I understand, they are still very much going through the licensing state-by-state process. So, they’re able to service, I believe, 37 states, and there’s a few big states they’re not able to service just yet. So, we’re still waiting for them to get the license, go through that.
But the narrative, not so much we were targeting the US illegally before and now we’re doing it properly. It’s not quite like that, at least from our perspective.
Okay. Okay, well, I guess now I’m two-for-two in asking you bordering-misleading questions. So, but speaking of the USD, which I mentioned earlier, that’s part of Venus, which is your stablecoin initiative, and you know, that will create kind of many different types of stablecoins for different fiat currencies. And in the Chinese version of your announcement, you referenced Libra when you talked about Venus, and your cofounder He Yi, I think is her name, said that Venus was “the one-belt, one-road initiative version of Libra.”
And so, you know, when you guys made this announcement, at that time it looked like Libra was just going to be this single global currency, and Venus was going to take a different strategy of being different stablecoins, different central bank currencies. But now, obviously, Libra is actually going in the direction that Venus was supposed to go, so, is that changing your strategy with Venus?
Okay, so, I think this is some misinformation there as well. Venus was never meant to be a stablecoin on its own. It’s a basket project encompassing several or many stablecoins in different parts of the world, and our approach is always to work with local governments, local corporations, or other regulatory bodies to issue different stablecoins for different regions. We did not have the thought of using a basket-backed stablecoin as a single stablecoin.
I haven’t really figured out how the economics of that would work. So, we took a very much simpler approach, say, look, US is a big market, and also, we found a very strong partner there, Paxos. They’re actually the issuer of the Binance USD stablecoin. So, even though it’s called Binance USD, the issuer is actually not us. So, it’s issued by Paxos, which is fully regulated by NYDFS, one of the strictest regulators in the world, and their bank account is, I assume is audited by the auditing firms.
I actually don’t see the bank account, but it is transparent, it is, like, there’s a peace of mind to it. So, that’s one part of it, and I think very recently I heard that the government of Bermuda is even accepting BUSD for tax payments, so, among a few other stablecoins that’s also issued from the US. So, that’s quite good. We also issued BDBP, so, that’s a British pound one. We also issued a BKRW, which is a Korean won one. So, there’s more in the works. So, our approach to stablecoin is that, I think the simplest approach is basically, look, take some fiat, put it in escrow, make sure it’s totally transparent, audited, regulated, and then issue a stablecoin on that.
That’s the simplest way. There are other, more fancier ways, like algorithmic, I can’t pronounce that word, those different type of stablecoins which are fancier, but that’s fine. So, we just provide a very simple option for our users, and we want to do this in more and more regions through with the Venus project, which is a kind of encompassing project.
Right, right, but actually, so, maybe you misunderstood my question, because I was saying that now that Libra is essentially doing what you had planned to do, like, does that change that strategy at all?
So, we don’t see ourselves as competition to Libra. We don’t see ourselves as competition to other stablecoins. So, we support other stablecoin initiatives. So, we support anything that users want, really. So, if a coin has a lot of users, we’ll likely support it, and hopefully we will be able to provide usability to a lot of users with our own stablecoin. If a lot of people use it, then it’s great. If nobody uses it, then we’re going to shut it down. So, that’s kind of our philosophy.
And China now is in the early stages of rolling out its central bank digital currency, DCEP. Does Binance ever see itself launching a Chinese yuan stablecoin as part of the Venus project?
So, right now, to be honest, we have no plans, and there’s two versions of Chinese yuan. There’s the onshore RMB, there’s the offshore RMB, and they’re not supposed to mix, because China do have very strict flight capital controls. So, right now I don’t think you can get a bank to support you to issue a stablecoin in China. There has been attempts to issue a stablecoin based on the overseas, the sort of oversea RMB, but very little adoption.
I think basically, today, US dollar’s still the dominant fiat currency, and we see that much of the volume is in US dollar-based stablecoins. So, like, stablecoins actually exist, this is very good for US dollar. It’s actually improved the US dollar’s dominance, but we’ll see. Things might change, but basically, if there’s a way to issue a stablecoin properly, with banking support, with approvals, fully-transparent auditing, if there’s those things, then we are more than happy to do that.
So, we’re talking with a few different initiatives, or different projects, but nothing’s, it’s still early stages. Nothing’s very concrete right now.
And what impact thing…DCEP will have generally on the adoption of crypto?
To be honest, based on my limited understanding right now, it feels very much like a digital version of RMB, which, probably plus a blockchain architecture somewhere in there. So, it’s still very much controlled, access to it is still very much limited to a number of large banks. So, how easy it is for a sort of a crypto player to integrate that into the ecosystem, I’m not sure. So, so far, we do not have access to it. So, my understanding is they’re testing it among a few big banks initially.
So, hopefully, if it gets really wide adoption, if everyone in China’s using it, and if there’s a blockchain interface that we can interface directly onto Binance, and let people deposit and withdraw, that would be great. If we can’t do that, then the usage will be somewhat limited. It’s still useful in the sense of educating everybody about blockchain and stablecoins, cryptocurrencies, et cetera, and I think today, if you learn about blockchain and cryptocurrencies, you cannot not learn about Bitcoin.
So, I think that exposure helps a lot, even if you can’t use it. So, it’s still early stages. We can’t use it today, because there’s still being very limited testing, but hopefully very soon we will be able to use it, and if we can, then that would be fantastic. That provides a much better on-ramp for RMB. We’ll have to see.
Yeah, and another thing that I find interesting that’s happening right now as we’re seeing this, you know, race amongst these central bank digital currencies taking place is that, obviously at the same time, we have this pandemic. So, I was curious to know what impact do you think the Coronavirus and the economic fallout from that will have on the adoption of crypto, and also, I wondered if you’re, like, already noticing any trends in terms of the activity on Binance?
Sure, absolutely. So, I think there’s definitely a lot of trends that we’re already noticing. The most obvious one on Binance right now is there’s higher trading volumes. There are far higher trading volumes ever since, like, about two months ago. So, there could be a different, a variety of different reasons contributing to that. It could be that people are just bored at home, and they just trade more because there’s less other distractions or other interesting things for them to do.
It’s also possible that, given that the governments are printing money at a record speed to sort of support the economy or to try to recover the economy, and now, those money are starting to flow into cryptocurrencies, and we’ve seen the price recovering. So, but all of those things, I think, have a very fundamental impact, and also, the Coronavirus has a huge impact in the sense that traditional industries are very much stopped, right?
So, production, like, basically, we can print a lot of money to sort of, and hand out money to everybody, but the fundamental fact is, production, like, in a lot of sectors have completely stopped. There’s a few essential sectors that’s still going strong, and online, virtual businesses are going strong, which is good for us as well, but then, with the government printing so much money right now, and everyone being bored at home, so, all of those factors contribute to the growth.
So, yeah, I mean, so far, I think there’s many KLLs, or, like, OGs, say, in the space. We’re kind of witnessing a perfect storm for Bitcoin and cryptocurrencies. So, I think if cryptocurrency does not shine in this environment, then I’m in the wrong industry, but I’m very confident about it, so…
During this time, you also became the number-one crypto futures trading venue. Why do you think that shift happened?
To be honest, I think we got lucky there. So, I think the futures platform actually has grown very quickly as well. Again, I thought it would take multiple years to grow to the number-one platform for futures, because we only started in late September last year, so really only just over half a year, and there were existing, established players with very large volumes, and we thought it was going to take a while.
We deliberately engineered the product to be a little bit different, even though it’s still futures. Yes, we copied a lot of other features, other people’s features, but the fee structure’s very different. Our fee’s about one-seventh of the existing players’ fees that they charge, for the taker side. So, we have very aggressive takers for the, so we are very attractive to the sort of smaller retail guys. We don’t have a maker rebate. So, it was deliberately engineered to be slightly different from the existing platforms.
And we were growing slowly, and to be honest, on March 12, with the biggest futures exchange experienced so many issues, and that’s the day when the Bitcoin price was moving really, really wildly. The Bitcoin price was dropping, and everyone wants to trade. Luckily, our system stayed up, and so, that moved a lot of liquidity to us, and actually, unbeknown to most retail people, Binance Futures has the fastest API and most stable API.
So, we average somewhere around 5 to 7 milliseconds, where, which is about, like, somewhere between, like, one-third to one-tenth of the latency of other platforms. So, this kind of things, over time they kick in, but honestly, we didn’t expect it to be that quick. So, and we still offer a very limited product in terms of futures. We only have the perpetual futures. So, we’re actually looking to add settlement futures. Our futures is settled in USD stablecoin, and we’re looking to provide a cryptocurrency-settled futures contract. So, all of those things are going on, but I think we got lucky on the futures growth.
I would say that somehow your career in crypto seems to have been born under a lucky star. One other thing I wanted to ask about was just, like, so, what you’re seeing kind of initially now in these early months after the Coronavirus pandemic. Do you think that, you know, that you have a sense of how long-term this will affect the adoption of crypto, or how you’ll see crypto-trading, or who gets involved in crypto, how all those things will change?
Yes. My feeling, though I could be very wrong on this, so this is just my personal opinion, is the impact’s going to be on the 11th month. So, I think it took a couple months for the impact to kick in. So, it didn’t kick in, like, on the second day, when we felt there was a financial crisis. When the stock market crashed, Bitcoin actually crashed with it. So, you actually didn’t have that sort of, saw it having an effect on a day-to-day basis, but I think we’re seeing that there’s a strong recovery right now.
And so, it’s been a couple months, and I think over the next few months, maybe six months, 12 month, 18 months-ish, we’re going to see very, very significant impact. I think more and more people are going to realize, okay, well, there’s just unlimited cash flowing around, and the minute they get the cash, they will want to put that into something that’s of limited supply, and the easiest thing to put that into is actually cryptocurrencies.
So, like before, ten years ago, that option wasn’t available, but now this option is available. People can buy gold, but other than a few, like, really old-timers, nobody really wants to buy gold anymore. So, and also, people are becoming more and more aware of the different economic impacts of different actions government take. So, I think over the next 12 to 18 months, we’re going to see some really significant changes in the crypto space.
And right now, we’re in a situation where, like, there’s a halving going on, right? So, it’s a perfect storm. So, after the halving, the supply of Bitcoin is actually going to be decreased. Well, the new supply of Bitcoin’s going to be decreased by half again. So, the supply is very, very limited, and people will just have to, I think, and more and more people come in. Like, the data we see on our platforms right now in terms of new users, and also, as well as old users whose account has been dormant, has been, like, they’re really coming back alive really, really quickly.
So, our customer support has really been busy, is helping people with password resets, et cetera, because there’s a lot of guys who, like, just forget their password after a while, right? So, we’re seeing all of those things happening. So, I think in the next 12 to 18 months, we’re going to see some really, a really significant increase in the adoption in the crypto space.
Yeah. Yeah. We’ll see what happens. It’s true that historically that has been the case, after halving. So, let’s switch from talking about Bitcoin to Ethereum. Your proposed Binance Smart Chain, which is a smart contract platform, will be compatible with Ethereum, but what do you say to the people who think that Binance Smart Chain is attempting to compete with Ethereum?
Well, I think basically, that depends on the definition of competing, because it’s really a very personal, subjective view for each individual. So, I mean, you can say Ethereum is competing with Bitcoin, or you can also say BNB’s competing with Bitcoin. At a broader level, maybe. You can also say we’re kind of complementing each other. So, initially, when Binance chain first started, our goal was to just provide a very fast chain that solves a performance issue with many of the existing blockchains, so that we can run a decentralized exchange on it.
And so, that goal has been achieved, but given the popularity of centralized exchanges and the ease of use for centralized exchanges, I think most people still didn’t know how to hold their coin themselves, to be honest. Like, if you grab a hundred guys on the street, 99 of them will not know, or at least are not confident holding a Bitcoin on their own. So, until that changes, and I think the decentralized exchanges will be relatively small, but it could change very quickly. We don’t know.
One of the most requested features for Binance chain was the smart contract, and everyone wants a EVM, Ethereum Virtual Machine-compatible smart contract chain. So, we said, well, if users want it, let’s provide it. So, we view ourselves as complementary to Ethereum, not competing. I think Ethereum does a lot of things very well. Ethereum did fulfill their vision, in the sense that they did build a unstoppable machine. The 1.0 version is still a little bit, like, they had performance bottlenecks, which everyone’s experiencing, so hopefully 2.0 will solve that.
But from our perspective, look, if something’s already working, and there’s a very large community’s already familiar with solidity programming, then we should just go along with it instead of fight it. So, we view ourselves, we never really view ourselves as competing with Ethereum. We support Ethereum. We list it on Binance.com. We have a very large number of pairing for it. So, I think we support the initiatives they’re pushing forward, and I think some of the technical problems they’re trying to solve are very meaningful.
If Ethereum 2.0 solves the performance scalability programs using sharding, that’s super-useful. So, we hope that they do well, yeah.
And so, if I’m a developer or user, why would I either create or choose to use an Ethereum DAB on the Binance Smart Chain, as opposed to on Ethereum?
Well, number one, on the Binance chain, if you issue a token on the Binance chain and use the smart contract there, you can just port over your Ethereum contract. It will work on both chains, and then, when you have it on a Binance chain, there’s a Binance decentralized exchange, the Binance DEX, that works out of the gate. I think the DEX Binance chain is very well done. It has a very, to the extent possible, a very user-friendly interface, and very fast matching engine, and it just works.
And then, you’re also in the Binance ecosystem. To be honest, most developers, you can be in both ecosystems. There are a lot of coins which are dual-chain or multi-chain right now. So, that’s just another option, and then, if you’re on Binance DEX and you hear trading volumes high enough, you get a slightly higher chance of listing on Binance.com. So, you’re kind of more visible to the Binance ecosystem. The Ethereum ecosystem has a very high number of users. The Binance ecosystem also has a large number of users.
So, and they’re two slightly different user groups, to be honest. The Binance ecosystem has more heavier traders and centralized exchange users, whereas the Ethereum ecosystem has more developers and more sort of the tech-heavy, pure-decentralization, that type of guys. So, slightly two different, even the kind of, within the same industry, there’s some differentiations between the different players. So, it’s just another choice that we provide for developers and users.
So, it sounds like if there’s more traders in the Binance ecosystem, then maybe it would make sense for some of the DeFi projects to move over there, or to create…okay. Okay, so, I wonder if there will be Ethereum people who will say, you’re stealing our DeFi users and developers. What would you say to them?
So, to be honest, I think there’s always two sides we can view anybody else on this planet. We can always view them as a collaborator, or we can view them as a competitor, for any person on this planet, because they’re breathing my air. So, I think basically, the fundamental situation we’re in in this industry is that we are a, the market is not, nowhere near saturated, right? So, only one in 1,000 people have some kind of crypto right now.
So, only 0.1 percent of the population have crypto. There’s 99.9 percent of the expansion that can be possible. In a saturated market, if you introduce a new player, yes, you’re going to take market share from other players. In a nascent market, one more player come in will make the ecosystem bigger. That’s much better for the ecosystem. So, we would want to invite Libra to come in. We would want to invite IBM, Microsoft, other guys, Google, to come in.
So, I think having more players in a small and not saturated market, nowhere near saturated market, makes this industry bigger. So, now we should be all collaborating to make this industry bigger, but once you achieve, like, say, look, if you want to do another, I don’t know, search engine, you’re probably competing with somebody else. If you do another browser, you’re probably competing with somebody else, but if you’re doing another blockchain, or another blockchain application, or even another exchange, chances are you’re not competing directly with us.
There are so many users who are not using Binance right now. So, only 0.1 percent of the population are in crypto. Only a small portion of that are using Binance. So, if you launch an exchange in somewhere else, you can get more users into this industry, and that helps all of us. So, there’s two ways to be viewed. I think that’s really depending on how a person likes to view, that depends on their work view. We don’t view anybody as competition right now. So, we just want to grow this space bigger.Crypto.com
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Yeah, that reminds me, I asked a similar question to Wences Casares ago, and he mentioned, he was talking about a different industry that he had launched a start-up in, but he basically said what you’re saying, that competition just grows the pie. All right. Well, one other thing I wanted to ask you about was some of your big news this year, which was that Binance recently acquired CoinMarketCap, and because Binance is an exchange, and is also at least one of the largest holders of BNB, if not the largest, some people say that Binance could have an incentive to sway the rankings and the reported volume on CoinMarketCap. So, what do you say to people who are concerned about that?
Well, I think, so, if we do that in a negative way, just for the benefit of Binance, then CoinMarketCap loses a lot of the value that it provides. So, I think neutrality is a very key value for CoinMarketCap, and I recognize it very well myself, and the CoinMarketCap team recognized that. Did we ask the CoinMarketCap to fix some of the fake volumes on CoinMarketCap? Yes, we did, and I think all the community agrees that there’s a lot of exchanges reporting fake volumes there.
Will we have our influence in that discussion? I think also yes, but all the business units, what I call business units, so, I view Binance.com, the exchange, as one business unit, CMZ as one business unit, Trust Wallet as another business unit. We have, like, I don’t know, 30, 50 different business units. Each business unit operates relatively independently, and so, if Binance wants to put an ad on CMZ, they will pay for it. So, the Binance.com exchange business will pay the CMZ business for that ad, and they will pay at market rates.
They’ll get the lower tier of the market rate, so they will not be ripped off, because for us, it’s really left pocket, right pocket, but I think, from my perspective, the best thing to maintain value overall for CMZ and Binance.com together is CMZ being the CMZ, and Binance.com, the exchange being the exchange. I think both are strong enough to compete on their own. We don’t need to sabotage one business for the benefit of another business.
Binance.com can compete. It’s already the number-one exchange by most metrices, and CMZ is the largest-traffic web site because it’s useful to a lot of users. And also, Binance.com would not unnecessarily benefit, give some benefit to CMZ, just to move CMZ up. So, I think both businesses will compete independently, and they should build value independently, and that does not involve CMZ directing all the traffic to Binance.com. So, people don’t have to worry too much about that.
And you did reference, obviously, the fake volumes, or at least the inaccurate figures on CoinMarketCap. What can you do, or what can CoinMarketCap do to make the numbers more accurate?
So, what I did was basically, I posted a tweet asking for feedback, and that was probably the number-one feedback that people wanted fixed. So, I just asked the team, just fix it somehow, I don’t care how you guys fix it. The team has what they call a liquidity metrics. So, they look at the order book, they look at a bunch of other metrices to try to fix it. And after that, so, I mostly use CoinMarketCap, right, for the CoinMarketCap.
So, when I look at a specific coin, I look at that. I did used to use the CoinMarketCap for exchange rankings, but it’s so inaccurate right now, so it’s kind of less useful. And then, I look at the adjusted volumes that they had, I was like, what, that’s even less accurate than the reported volume. So, I did give those feedback, but other than that, I didn’t tell them how to fix it. So, I said, look, there’s a bunch of metrices you can use. You can tie together with web visits, or you can tie it together…they also have data on outbound clicks, how many people click on the links for each exchanges, to go to the exchanges.
And Binance is number one, even though Binance is mostly ranked at, like, 15 out of 20, or 25th spot, because there’s a bunch of other guys with fake volumes in front of that. So, we look at those data. Even historically, Binance is number one, and actually, if you look at the outbound data, it’s actually very accurate. That gives a, like, a very accurate…so, they have a lot of data that they can use to sort of fix the ranking. I did not tell them specifically how to fix it, but just said, look, that’s the number-one user-requested feature. You guys fix it.
Yeah. Well, we’ll see how that goes. Good luck to you guys on that. One other thing I wanted to ask about was, you know, you guys launched this leveraged trading in October, and you did it with 125x leverage. When high leverage can so easily cause many traders to get wiped out, why did you offer such high leverage?
Okay. So, I’ll make a confession. The high leverage is more of a PR gimmick. So, the 125x is only available for small amounts. So, if you want to trade, like, I don’t know, a couple hundred bucks, yes, you can go 125x. And at larger amounts, if you want to trade 10 million dollars, no, you don’t get 125x leverage, because if you got liquidated, the current liquidity in the industry is not strong enough to support that kind of liquidation.
So, it’s a tier system where for smaller amounts, you get to that kind of leverage, and we have a de-leveraging system that, if you approach your margin, and then, you get de-leveraged. Most of the people actually only use, like, 10, 20 max. Like, most people don’t really use above 30, 50x. So, the high leverage is really sort of just, well, there was 100x, and there was 101x. We said, well, 101 doesn’t really divide very well, 125 divides much better.
If you divide it by eight, you get a nice number. If you divide by seven, you get a nice number. So, we just said, well, let’s go with that. So, most people don’t use that high leverage.
Okay. Okay. Well, we got a nice admission there. So, this is going to be something else that a lot of people are going to be curious about. In early April, 11 class action lawsuits were filed against a number of crypto companies and token projects, and Binance was one of them. The suit named you and your cofounders He Yi and Roger Wang as defendants. The lawsuit noted that in 2019, Binance averaged more than 2.8 billion dollars in daily trading volume, had more than 15 million users worldwide, and listed 184 tokens, and it also talked about how in 2018, Binance brought in 446 million dollars in profit.
And then the lawsuit said, “How did a company that was barely a year old generate such extraordinary profits? By building a platform that solicited the buying and selling of unregistered securities on a historically unprecedented scale.” What is your response to that?
So, on that point, our lawyers told me not to say anything, so I will not comment on that. But we have lawyers handling it, so it is what it is. I think every company, well, we were not without lawsuits from the very beginning. We had Sequoia suing us at one point, so, that’s resolved. Again, I cannot comment on that outcome, or on the details, but that’s completely resolved, no issues anymore. So, we just had lawyers handle it. One of the tricky things in this world is that in the world I was brought up in, at least the values I was taught, you’re innocent until proven guilty.
Having somebody suing you is a standard, well, not a standard, is a normal part of a business process. But today, many people think that as soon as there’s a lawsuit, you’re guilty, which is not the right, I don’t think that’s the right perception. So, we’ll let the lawyers figure it out. Unfortunately, in this kind of situations, all the lawyers tell you to not comment on it. So, I can’t comment on the specifics, but we’ll see. Yeah.
Yeah. I think what’s interesting is that this sort of goes back to our first interview, where I was asking you these questions, but yeah, we’ll see how this plays out, because I think these were things that a lot of people were wondering about, and now we’ll finally get our answer. So, another kind of controversial issue recently was that, you know, obviously, so, we’re seeing now that more and more blockchains are using Delegated Proof of Stake, and because of that, some people are concerned about the power that exchanges might have in those systems because of the coins that they hold for their users.
And a good example is what happened with the Steem blockchain when Binance initially helped the Steem tokens on the exchange, or used the tokens on the exchange to help Justin Sun as he took control of Steem. And then, Binance later reversed course and helped a fork of Steem called Hive to basically remove some of the control that Justin Sun had. So, why did Binance change directions with Steem, and how do you think exchanges should handle the power that they have in these Delegated Proof of Stake systems with the coins they have?
Yeah, so, to be very frank, and I said this openly a few times already, which is we didn’t know it was, like, a contentious fork. So, we go through many wallet upgrades, right, so, blockchain upgrades. Whenever there’s a blockchain upgrade, it’s very often a soft or even a hard fork, and typically, the developers, the core developers will contact us, say, look, there’s a hard fork coming, you guys need to upgrade your wallet and support it. We just follow the instructions, really.
So, they give us a detailed level of instructions. We look at it, we just follow it. And so, and the fork was presented to me as a upgrade, and I was asked just that one, yeah, let’s go for it. So, I didn’t even…
And who were you…?
I did approve it…my team…
Who asked you?
…my own team. So, my own team talked, and actually, I did not talk to Justin before this. So, their team was talking to our team on the wallet upgrade, and my team asked me, hey, it was the standard, like, rubber-stamp process where they say, look, there’s a wallet upgrade, are we going to support it or not? It was, like, yes. So, that was the extent. Afterwards, the Steem community went ballistic, and I was like, okay, well, that’s not very good.
So, I made a mistake of not realizing that, which I fully admit and take responsibility for, and we do not want to get involved in governance, blockchain governances, weigh in our opinions, et cetera. Especially, we don’t want to use our users’ coins to do that. So, if we want to weigh in, the only way we will do that is to make a vote feature on Binance.com, so that the guys, we have a weighted vote according to their balances, and then we use that to vote.
But we don’t even have that feature today, because we don’t really want to get into that. And so, after the fact, and Steem works in a very strict way. Once you vote, like, what they call power up, which I learned afterwards, when you power down, it takes 13 weeks to unlock. I think we’re still probably in that process, or maybe, we’re probably near the end of that process. And so, as soon as we discovered, we reversed course, we said, look, this is not something we want to get involved with.
We did what the community asked. The communities still have some resentment on the actions that we took. They think we caused the fork, but the fundamental fact is, after we reversed the actions, Justin Sun probably has a lot of financial, what do you call it, ability to influence that anyway. Like, I didn’t look at the data, but for a while, the Steem coin price was going up because both sides were trying to buy more Steem to vote. So, we’ve seen that happening.
I did not really look into the details of that, but from our perspective, our principles are very simple. If it’s not a contentious fork, if it’s a regular upgrade, we definitely support it. We support the blockchain, the ecosystem to grow. So, we have a standard process. Now, we added a check to see if there’s a contentious hard fork, but normally, we’d just support an upgrade, but our principles is we do not get involved in other people’s blockchain governance.
That’s for their community, that’s for whoever holds those coins. So, we want to stay neutral in terms of other blockchains’ governance. We’re not interested in that. So, one of the interesting thing is, right now there is somewhere, I would say for any coins between, like, ten to 30 percent of coins on an exchange, on Binance specifically, so, for any Delegated Proof of Stake consensus mechanisms, they have to design with this in mind.
So, ideally, you design in such a way that it’s either easy for people to withdraw coins from exchange vault, and not have those coins locked for 13 weeks before they can redeposit and trade, or have a way for exchanges to be able to vote on the users’ behalf. So, we will never vote on our behalf using the users’ coins. So, those kind of questions which are being considered, and someday we may want to support it, but it does raise the question of some of the blockchain designs, where when they design it, some of them had very simplistic designs, where they just assume everyone holds their coins in their own wallet, and they never trade, and they just buy it and spend it.
So, but the world is not that naïve. So, we just have to take that into…I just hope that other designers of blockchains take that into consideration, but our principles are very clear, very simple.
In November, the Block reported that Binance had two Shanghai offices that closed after being visited by local authorities, and then in February, after some media outlets described Binance as being Malta-based, the Malta Financial Services Authority issued a statement saying that you are not authorized by the MFSA to operate in the cryptocurrency sphere there. So, where is Binance headquartered?
Well, this is the beauty of the blockchain, right? So, like, where’s the Bitcoin office? Bitcoin doesn’t have an office. So, we have people around 50 places in the world, and actually, just to make the record correct, just to set the record, the Block article saying that we had a police raid, that did not exist, police raid on a Binance office. So, that was pure fake, and within 12 hours of that post, the BNB market cap dropped from 2.6 billion to 2.2 billion.
So, that fake article actually had a very mature impact on the BNB holders. So, they actually really wiped out 400 million dollars. Yeah.
But just to clarify, I mean, so, the Block did admit that “police raid” maybe wasn’t the term, but to, you know, to say that you guys were visited by local authorities checked out, in their opinion. Are you going to dispute that?
I mean, I don’t even know. So, I think the story carries a very much different weight if you say, well, a government official visited Coinbase versus the police raided Coinbase. I think those two things are very, very different, so you can’t really…
But to say that the office closed after the visit from local authorities, are you going to dispute that?
So, yes, I am. So, again, so, basically, also, at that same time, there was a Chinese CCTV visit of an office in Shanghai, where they reported it was a customer support office. So, it’s an out-sourced customer support office, it’s not even Binance office. So, again, so, yes, I openly disputed that. So, I think people have all this traditional mentalities they have, they try to classify what kind of horse is a car. So, you have to have an office.
Wherever I sit is going to be the Binance office. Wherever I meet somebody is going to be the Binance office, and you have to have an entity. You have to have a headquarter, you have to have a bank account. All of those things doesn’t have to exist for blockchain companies.
Well, I mean, just, but even to do things, like to handle, you know, taxes for your employees. Like, I think you need a registered business entity. So, like are you obfuscating it? Why not just be open about it, like, you know, the headquarters is registered in this place? Why not just say that?
Well, so, it’s same thing as, why don’t you admit that you’re some kind of horse? We’re not a horse, we’re a car. So, it’s not that we don’t want to admit it. It’s not that we don’t want to, we want to obfuscate it or we want to try to hide. I’m not hiding. We’re in the open. I’m on Twitter every day. I go to fiscal conferences. So, we’re not hiding, but it’s just like, why don’t you go back to this old way of being? I mean, we’re not that, so…
I mean, what are you saying, that you’re, like, already some kind of DOA, or, I mean, what are you saying, because it’s not the old way, it is actually the current way, and until you can say, like, we’re officially a DOA, like, I actually don’t know, you know, what you are or what you’re claiming to be.
So, let me put it this way. So, I don’t think we’re a DOA in most of the definitions of a DOA. I think, again, I think that’s kind of a binary definition, you’re either a traditional company or you’re a OAw. I think we’re just a team working together really well, and we built a platform that works, and we have multiple places we work. We mostly worked from home even before the Coronavirus quarantine. We work in 50 different countries now.
We have a large team that works together to a common goal. It’s just a new type of organization. I wouldn’t classify, to be honest, if we classified as a DOA, there’s going to be a lot of debates why we’re not a DOA, so I don’t want to go there either.
Yeah. I mean, nobody would call you guys a DOA, and can I ask where you are right now, where you’re doing stay-at-home?
Yeah, I’m in Asia. So, it’s 7 p.m. here. It’s, like, 7 a.m. your time.
Where in Asia? Where in Asia?
I prefer not to disclose that. I think that’s my own privacy.
All right. Well, that’s going to have to be where we’re going to end, because it’s now 8 a.m., and that’s it. Thank you so much, CZ, for making this fireside chat happen, especially last-minute, and I hope everybody enjoys the rest of Ethereal. And did you want to say any last words?
Sure. Thank you, Laura, and I always appreciate your tough questions. It actually makes an interesting conversation. Cheers.
Yeah. I appreciate that you are willing to take my tough questions. I hope we can make this happen again.
It’s fun. It’s fun.
All right, great.
All right, see you later, Laura.