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Speaker 1: This is Bloomberg Crypto Daily Bloomberg I heard podcast, and

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Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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Speaker 1: It's Tuesday, January ten, and so there was one man left.

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Speaker 1: After the rapid fall of crypto Exchange f t X

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Speaker 1: and the indictment of its former CEO, Sam Bankman freed

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Speaker 1: Binance now rules supreme in this sector. By one estimate,

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Speaker 1: it now accounts for more than all spot trading. But

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Speaker 1: whatever the number is, one thing is for sure. Finance

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Speaker 1: CEO Chang Peng Zhao, known by his initials C said,

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Speaker 1: is now by far crypto's most powerful man. That's given

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Speaker 1: rise to fears that finance has become simply put too arch.

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Speaker 1: Critics call it the ultimate post child for too big

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Speaker 1: to fail, and they say that if finance goes down,

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Speaker 1: so does whatever is left or crypto. But exactly how

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Speaker 1: did Viinance get so big? How did C said achieve

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Speaker 1: this in a market where so many others have fallen

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Speaker 1: by the wayside. On today's show, I'm joined by Bloomberg

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Speaker 1: reporters Justina Lee. I think finance is very good at

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Speaker 1: jumping on every crypto trend and giving the people what

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Speaker 1: they want. And Muya Shan, every trader I've been talking

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Speaker 1: to you who being active on finance, they said that

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Speaker 1: boneance is not FDx. We unpack how binance and sees

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Speaker 1: it came to dominate crypto and whether that dominance creates

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Speaker 1: a new threat to the future digital assets. Hi, Muyo

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Speaker 1: and Justina, and thank you so much for joining me today. Hello.

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Speaker 1: Can I ask you guys to move Maybe you want

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Speaker 1: to go first. Just take your name and what you

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Speaker 1: cover from Bloomberg. Sure, thanks for having me today. My

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Speaker 1: name is Muya Shan and I am a reporter at

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Speaker 1: boom Berg News on the Crypto Team. I cover everything

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Speaker 1: from the you know, the biggest centralized exchanges to um

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Speaker 1: the the centralized players in the space. And my name

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Speaker 1: is Justina Lee. I'm a reporter on the cross as

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Speaker 1: the Market team, which basically just means everything including crypto.

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Speaker 1: I wrote the Business Week cover story last year on finance,

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Speaker 1: which is probably the longest story you will ever want

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Speaker 1: to read about them. Let's take ways perfectly into what

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Speaker 1: we're going to talk about today, which is binance. It

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Speaker 1: is a fascinating topic in the sense that we have

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Speaker 1: an industry that built itself on the idea of decentralization

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Speaker 1: that is now I guess you could argue more centralized

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Speaker 1: in some ways than her Um and Binance. This is

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Speaker 1: obviously at the heart of that. Just Diina, you've met

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Speaker 1: and spent some time with the CEO of Binance, he said,

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Speaker 1: shang ping Zao and mangling the name probably, But se said,

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Speaker 1: to those who know crypto, what can you tell us

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Speaker 1: about him? Yeah, I mean the first time I met

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Speaker 1: him was actually back in eighteen when I interviewed him

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Speaker 1: and he invited me to this dinner with him, his

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Speaker 1: co founder and a Binance volunteer. So in that sense,

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Speaker 1: he's a bit like his social media persona. You know,

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Speaker 1: he's very friendly, he's down to earth. I think for

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Speaker 1: some crypto skeptics he probably comes across as a little simplistic,

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Speaker 1: But in that sense he's also a very approachable guy.

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Speaker 1: And I think behind the scenes he's probably a bit

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Speaker 1: more shrewd than he lets on. You know, he's very

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Speaker 1: good at discerning the trans and crypto and jumping on

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Speaker 1: like every bandwagons just fast enough, with like really good execution,

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Speaker 1: and in a way he's you know, your your classic

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Speaker 1: founder CEO I mean, he's so very much involved with

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Speaker 1: the management of his company and his current strategy. Yeah,

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Speaker 1: and Muyal, what's your experience with c said and you

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Speaker 1: sez things. I first started covering crypto back in twenty eighteen,

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Speaker 1: and he has always been a very important player in

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Speaker 1: the space, and at the time with the China Band,

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Speaker 1: I think Cuz was one of the first, I think,

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Speaker 1: really intelligent leader at least in the space that moved

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Speaker 1: finance overseas like immediately on like a lot of other

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Speaker 1: Chinese changes. And one thing that I find fascinating if

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Speaker 1: you look at the last two to three months in crypto,

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Speaker 1: months in crypto, it's pretty much been as terrible at

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Speaker 1: a time as anybody can remember. And she said is

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Speaker 1: running by arguably by far, the largest company in crypto.

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Speaker 1: He is literally on Twitter, or was at least for

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Speaker 1: a couple of weeks there on Twitter every single day.

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Speaker 1: He was doing a m as he was doing interviews

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Speaker 1: with me. Yeah, he was speaking at conferences, he was

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Speaker 1: traveling all around the world meeting with regulators and heads

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Speaker 1: of state and who knows what how does he do that?

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Speaker 1: Is he just a good delegator? What's the story there

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Speaker 1: or does he just work twenty four hours a day. Well,

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Speaker 1: he has said before that he has no other interests

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Speaker 1: because he doesn't see anything else that's worth doing. I

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Speaker 1: think he very much is conscious of the fact that

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Speaker 1: he's become, you know, the spokesperson for the entire industry,

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Speaker 1: and of course he and Finance benefit a lot from that,

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Speaker 1: and that you know, it's very important for him to

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Speaker 1: be there supporting the industry, talking it up, you know,

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Speaker 1: dispelling the fund as they say in crypto, because at

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Speaker 1: the end of the day, you need the volumes to

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Speaker 1: be high and you need sentiment to be strong for

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Speaker 1: the business to be profitable. I think maybe also, like

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Speaker 1: you know, coming from immigration family background. Obviously I don't

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Speaker 1: know him personally, I feel like in general what I

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Speaker 1: see from immigration family like his, they usually kind of

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Speaker 1: have this hard working, really good quality in general, and

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Speaker 1: they don't really mind the working that much or their

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Speaker 1: care is like if it's worth it, Yeah, mission mission

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Speaker 1: driven to say the least. And let's zoom out a

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Speaker 1: little bit on binance, because we talk about binance as

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Speaker 1: a crypto exchange, but they're more than that. It doesn't

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Speaker 1: really work the same way in crypto as for instance,

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Speaker 1: and stock markets. Justina, can you talk a little bit

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Speaker 1: about like what the entity looks like in terms of

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Speaker 1: the functions that they fulfill. Yeah. I mean part of

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Speaker 1: this is down to crypto market structure, where it is

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Speaker 1: very typical for a big exchange to also be you know,

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Speaker 1: the brokerage in a way, the clearinghouse m the issuer

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Speaker 1: of products. But I think finance is also unique in

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Speaker 1: that it's always wanted to be this really user friendly

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Speaker 1: one stop shop, and it's kind of managed that through

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Speaker 1: acquisitions as well. You know, for instance, it also owns

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Speaker 1: trust wallet, which kind of lets you hold the coins yourself. Um,

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Speaker 1: let's try to do an n f T market place.

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Speaker 1: It kind of has all these derivatives, and you know,

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Speaker 1: it even has his hand in um defy, which might

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Speaker 1: sound ironic given that the D is supposed to stand

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Speaker 1: for decentralization. But it also has its own blockchain, which

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Speaker 1: is called the B and B chain. And so I

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Speaker 1: think some of this is down to like the crypto

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Speaker 1: market structure inherently, but some of that is also down

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Speaker 1: to CZ recognizing that at the end of the day,

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Speaker 1: what users want is one app, you know, one website

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Speaker 1: that can help them get into various aspects of crypto,

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Speaker 1: and is this what's allowed them to become so big,

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Speaker 1: so fast? What's the secret sauce here? I think finance

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Speaker 1: is very good at jumping on every crypto trend and

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Speaker 1: giving the people what they want. I mean, the decision

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Speaker 1: that they made early on that really made them the

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Speaker 1: dominant exchange is capturing the I c O boom. I

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Speaker 1: mean back in the day when a lot of exchanges

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Speaker 1: were a bit reluctant to basically for all the coins

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Speaker 1: in the world. I mean, that was exactly what they

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Speaker 1: did when initial coin offerings were all the rage. And

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Speaker 1: I mean since then, they've also jumped into the futures

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Speaker 1: trend when they decided to get into derivatives back when

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Speaker 1: you know, there was a bit less up moves and

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Speaker 1: so a lot of traders started using leverage to capture volatility.

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Speaker 1: And then of course they got into defy would they

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Speaker 1: be in the chain? And of course I think a

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Speaker 1: lot of people would say they are quite user friendly,

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Speaker 1: even if you're not a very sophisticated traders, and the

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Speaker 1: fees are reasonably low. Another aspect is they're very good

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Speaker 1: at marketing. You know, early on they had this Finance

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Speaker 1: Angel program, which is where they recruited these volunteers to

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Speaker 1: be in a way, like community representatives to talk about

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Speaker 1: finance and crypto and their native languages in their native countries.

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Speaker 1: And they very famously helped these trading competitions where they

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Speaker 1: gave out Lamborghinis and all that. And they also do

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Speaker 1: a lot of like affiliate marketing and so all. No.

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Speaker 1: I just think they're very good at mark kidding themselves

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Speaker 1: a marketing crypto to like the broadest audience possible. They

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Speaker 1: have the sees that as the market in chief as well.

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Speaker 1: I mean, when it comes to being out there pumping

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Speaker 1: your product, prompting your brand name, not many CEOs do

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Speaker 1: it as much as Heesa does them right exactly. And

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Speaker 1: the other thing about them that is a pretty strange

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Speaker 1: thing is that they're everywhere, but they're also nowhere. And

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Speaker 1: by that I mean they have no pinpointed global headquarters.

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Speaker 1: So they're pretty much in every market that is meaningful

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Speaker 1: in crypto, yet they have no global headquarters. What we

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Speaker 1: think is the thinking behind is I think early on

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Speaker 1: they learned from the China experience. They launched in China

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Speaker 1: and got kicked out after you know, basically a few

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Speaker 1: months after they launched when China decided to ban crypto exchanges,

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Speaker 1: and so that really forced them to go overseas. And

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Speaker 1: I think if you're being you know, um a bit generous,

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Speaker 1: you could say it's always been a bit difficult for

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Speaker 1: crypto companies to obtain a license, especially in the stage

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Speaker 1: when regulators didn't really know what to do with them.

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Speaker 1: But I think it's also true that they were never

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Speaker 1: really ready to offer all the concessions to obtain those

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Speaker 1: licenses and to be regulated, and their particular benefits to

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Speaker 1: this because basically it's really hard to establish the jurisdiction

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Speaker 1: over finance and if you're nowhere, then you're no regulators problem.

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Speaker 1: And that's also made them harder to sue, you know,

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Speaker 1: for disgruntled business partners and users, because essentially you cannot establish,

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Speaker 1: you know, what is the parent company that runs this

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Speaker 1: exchange and where are they based and kind of by

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Speaker 1: sort of operating in this gray area, they've also managed

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Speaker 1: to broaden their market and offer their services to the

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Speaker 1: entire world. Now that's kind of start to change in

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Speaker 1: recent years when crypto became higher profile and start to

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Speaker 1: draw the attention of regulators and so basically what's kind

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Speaker 1: of been happening is sometimes when our governments started to

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Speaker 1: crack down on them, they would say that they're going

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Speaker 1: to withdraw from this particular market, maybe they're going to

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Speaker 1: stop offering futures to Hong Kong people, for instance. But

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Speaker 1: you know, even then, it's basically offered them a lot

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Speaker 1: of flexibility and kind of made them not to beholden

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Speaker 1: to any particular market, which is a lesson that they

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Speaker 1: learned early on from being kicked out of China. Was

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Speaker 1: it a shrewd power move or just a luck of

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Speaker 1: the draw up? Next, more on finance, this role in

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Speaker 1: the f TEX collapse. I want to rewind a little

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Speaker 1: bit and I want to talk about those early days

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Speaker 1: in November, but I want to start with discussing a

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Speaker 1: little bit the relationship with between c S and the

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Speaker 1: former CEO of f t X, Sam Bank Maunfreed, who

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Speaker 1: is now you know, under US indictment. How did they

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Speaker 1: different terms of their public persona and the early on

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Speaker 1: they seemed to have been allies because c Z actually

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Speaker 1: invested fd X when it first started. But I think

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Speaker 1: as f t X grew, I mean naturally they became rivals,

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Speaker 1: and it's been kind of interesting to look at how

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Speaker 1: the two have been differently perceived by the press and

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Speaker 1: the public, because I think for a lot of people,

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Speaker 1: SPF was really, you know, as he said, like the

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Speaker 1: golden child of crypto, especially in the US. I mean,

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Speaker 1: he very openly courted politicians. He kind of had this

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Speaker 1: stellar background with you know, a degree from M I.

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Speaker 1: T and parents who were these famous and well respected academics.

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Speaker 1: And at the same time, it would seem like CZ

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Speaker 1: was being treated as someone who dodged regulations um and

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Speaker 1: who was lesser known by the mainstream, even though finance

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Speaker 1: was a lot bigger than f t X and he

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Speaker 1: seemed to be you know, less sophisticated, a bit more foreign.

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Speaker 1: But at the end of the day, I think it

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Speaker 1: would be fair to say, um, even you know, before

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Speaker 1: their recent revelations, that in a way they play the

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Speaker 1: same game, like you know, a lot of crypto exchanges

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Speaker 1: are taking advantage of kind of the regulatory ambiguity. And

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Speaker 1: of course f t X also operated off shore. And

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Speaker 1: now we get to um to a part that is,

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Speaker 1: you know, where the drama really starts, and this actually

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Speaker 1: takes it through. So you mentioned Justina that C said

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Speaker 1: actually invested in f t X, and that investment to

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Speaker 1: a to a certain extent, becomes in not the root cause,

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Speaker 1: there's certainly not the root cause, but an accelerant in

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Speaker 1: the implotion of f t X, because he said got

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Speaker 1: the ex native exchange token f t T when they

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Speaker 1: exited that investment, Justina, can you talk us a little,

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Speaker 1: you know, those those events around November six, I think

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Speaker 1: it all kicked off with a tweet from C said

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Speaker 1: about selling FTT. What happened there? Yeah, Well, the background

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Speaker 1: to that tweet was that there was a coin dust

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Speaker 1: story about how Alimator researches balance sheet was mostly f

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Speaker 1: t T. You know, the f t S token and

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Speaker 1: elimeter research is the high frequency trading arm of f

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Speaker 1: t X. And after that CZ threatened into tweet to

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Speaker 1: dump his FTT holdings, and that really set off a

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Speaker 1: vicious cycle there where a lot of clients began withdrawing

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Speaker 1: from f d X, which kind of in turn increased

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Speaker 1: the pressure on the exchange. And after that, in what

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Speaker 1: I think to a lot of us at the time,

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Speaker 1: was a shocking turn of events. Um kind of SPF

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Speaker 1: tweeted that Finance was looking to acquire fd X, but

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Speaker 1: then very shortly after that, finance kind of backed out

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Speaker 1: of it, seemingly, you know, after it looked into f

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Speaker 1: t x is finances and discovered kind of what a

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Speaker 1: black hole it actually was. All right, well, here we are,

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Speaker 1: ft X is gone and buying is supremely dominant. Justina,

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Speaker 1: you've covered this a bit. Where are they now? I

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Speaker 1: think I saw a figure the other day of of

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Speaker 1: all spot trading going through Binance right now, no matter

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Speaker 1: how flies, and I said, how you slice, And I said,

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Speaker 1: they're pretty They're pretty on top now, right exactly. I mean,

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Speaker 1: that's always been sort of an irony of the crypto

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Speaker 1: industry that it talks so much about decentralization, but at

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Speaker 1: the end of the day where we are seeing consolidation

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Speaker 1: take place right before our eyes. And I think it's

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Speaker 1: kind of interesting because c z has always been pretty

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Speaker 1: honest about how he also thinks that decentralization does have

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Speaker 1: its downsides and so and we shouldn't sort of just

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Speaker 1: glorify that. But I think this theme is especially true

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Speaker 1: for Binance because it's a very opaque company that we

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Speaker 1: know is at the end of the day dominated by

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Speaker 1: c Z um you know, a lot of my reporting

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Speaker 1: has shown that if you look at the entities UM

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Speaker 1: that are within the Binance Empire, out of them are

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Speaker 1: owned entirely by CZ and no one else. And if

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Speaker 1: you look at the acquisitions that it's done over the years,

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Speaker 1: it's really tried to buy a lot of different crypto

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Speaker 1: entities kind of within the industry to have a toe

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Speaker 1: hold in every single aspect of it. The one thing

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Speaker 1: that we need to sort of point out here is

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Speaker 1: that they were put to the test during a couple

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Speaker 1: of weeks late in the year. They were pretty massive

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Speaker 1: outflows from finance and they did to their credit. I mean,

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Speaker 1: and this is something that they are not shy about

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Speaker 1: pointing out. I mean, they did meet all these redemptions,

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Speaker 1: and I think they said we met them without ever

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Speaker 1: breaking stride. Where does that put us um, Justina? Do

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Speaker 1: you do you think that should we give them the

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Speaker 1: benefit of the doubt in terms of they have been

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Speaker 1: able to handle really sharp outflows? Well, this is a

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Speaker 1: dangerous question to answer in crypto right now, but I

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Speaker 1: would say, you know, to a lot of people, it

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Speaker 1: was reassuring that they survived that test. And in my

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Speaker 1: rate of CZ, I do think that he is a

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Speaker 1: much more cautious and you can say even conservative operator

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Speaker 1: than SPF. I think that obviously, there are still some

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Speaker 1: reasons to worry, and most of that has to do

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Speaker 1: with the opacity of finance. They released what they called

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Speaker 1: like a proof of reserves audit by this um auditing

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Speaker 1: firm you know, a few weeks ago I think exactly,

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Speaker 1: and it was actually extremely limited. Mazaris was very explicit

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Speaker 1: that they only did that based on the instructions of finance,

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Speaker 1: which were not comprehensive at all. And very soon after that,

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Speaker 1: Mazaras actually said that they were going to stop doing

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Speaker 1: all crypto work, and so I think that's definitely something

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Speaker 1: that's very worrying if you compare that to at least

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Speaker 1: the traditional finance sector. Well, yeah, what do you think?

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Speaker 1: Where do you stand on this? What are you hearing

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Speaker 1: from market contacts? Every trade I've been talking to who

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Speaker 1: being active on binance? They said that Bienniance is not FTX,

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Speaker 1: but again, like who knows. I think for like the

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Speaker 1: public or users in general, to really get sort of

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Speaker 1: trust from Binance, the key thing is whether if they

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Speaker 1: can find an audit like one of the big audit

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Speaker 1: firm to really help them to prove to the public

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Speaker 1: that they don't have the sort of liability that FTX had.

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Speaker 1: And also they are not using users sponsoring any sort

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Speaker 1: of way as FTX had. Justina, thank you so much

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Speaker 1: for coming on and giving us your insights. You can

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Speaker 1: find more of their reporting on the Bloomberg terminal and

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Speaker 1: on Bloomberg dot com. For more, be sure to check

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Speaker 1: out twice weekly newsletter Bloomberg Crypto. This is Bloomberg Crypto,

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Speaker 1: your comments, questions, or suggestions for the show to Crypto

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Speaker 1: at Bloomberg dot net. The supervising producer of Bloomberg Crypto

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Speaker 1: is Vicky Vergelina. Our senior producer is Janet Babin. Our

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