Countries have warned people about the lack of authority to provide services on the trading platform. "We need to be regulated," the CEO said.

The world’s fastest-growing major financial exchange has no headquarters or official address, no license in the country in which it operates, and has a CEO who only recently answered questions about its location.

Starting only four years ago, Binance is an exchange giant in the digital currency world, with cryptocurrencies equivalent to the combined stock exchanges of London, New York and Hong Kong. According to data from the data provider CryptoCompare, after experiencing rapid growth, Binance processes more cryptocurrency transactions such as Bitcoin and Ether each day than its four major competitors combined, valued at 76 billion U.S. dollars.

However, for Binance and the entire crypto industry, years of basically unconstrained and unregulated growth is coming to an end.

Financial regulators are increasingly concerned that until recently, digital assets that have been regarded as a fashion by some have grown so fast that they are now of systemic importance. In a speech in October, Bank of England official Jon Cunliffe mentioned the crisis triggered by subprime mortgages in 2008 and talked about cryptocurrencies, “When something in the financial system grows very fast, and to a large extent When growing in an unregulated space, the financial stability authorities must sit up and pay attention."

Binance has attracted the most regulatory attention. In recent months, authorities in more than a dozen countries have warned users that the exchange is not registered or authorized to provide various services.

According to former executives, the US Securities and Exchange Commission is investigating how Binance conducts business in the United States, where the company has many state licenses. According to one of the executives, the US Securities and Exchange Commission has asked Binance's US subsidiary to provide a list of information, including its relationship with this global organization. At the same time, a former executive said that the Justice Department is reviewing whether Binance is instigating money laundering activities. Bloomberg News previously reported on the Justice Department's investigation.

The US Securities and Exchange Commission and the Department of Justice declined to comment.

The U.S. market puts a major test on cryptocurrency exchanges, which shows that it hopes to list its U.S. branch within a few years. A former financial regulator hired to establish Binance.US, the US business of Binance, resigned in August after only three months in office.

Some former executives expressed that they were concerned that control of the US exchange data was in the hands of the Chinese coders where the company was founded. They stated that this may raise issues similar to TikTok, referring to the Trump administration’s efforts to ban the social media platform for fear of the Chinese government’s possible access to its customer data, which TikTok denies.

Changpeng Zhao, the founder and CEO of Binance, said in an interview that the exchange needs to align with regulators. He said this includes obtaining proper permits.

"We are running a very legitimate business," he said, and because users trust it, the business has grown rapidly. But "if you look at the adoption of cryptocurrency in the world today, it may be less than 2%" of the population, Mr. Zhao said. "In order to attract those 98%, we need to be regulated."

Mr. Zhao said that Binance is setting up a local office and headquarters. He previously thought that these steps were outdated, but the regulator wanted to do so. He won't say where. In August, Binance stated on its website that it had enforced user identity checks to prevent the use of exchanges for illegal fund flows.

Representatives of Binance and Binance.US declined to comment on the SEC and DOJ investigations, which the two companies said are separate entities. "We take a collaborative approach to work with regulators around the world and take our compliance obligations seriously," Binance spokesperson Jessica Jung said. She said, “With the development of Binance, crypto trading and regulation are also developing, and vice versa.”

A spokesperson for Binance. Matthew Miller of the United States said: "We have strong protection measures to ensure that data can only be used for appropriate customer fulfillment, performance improvement or regulatory requirements." He said that all U.S. customer data is stored on servers in the United States.

Binance’s lack of a fixed location confuses regulators because they don’t know who will oversee it. The parent company Binance Holdings Limited was incorporated in the Cayman Islands. According to the Cayman Islands financial regulator, Binance is not registered or licensed to operate a cryptocurrency exchange in the country. Spokesperson Ms. Jung said that Binance does not operate the exchange from there.

However, it wasn't until September that Binance's Australian website stated that Binance Holdings is an entity that provides cryptocurrency exchange services to Australian users. Ms. Jung called this "just a clerical error."

Mr. Zhao said that Binance has 3,000 employees worldwide. According to former executives, based on its transaction volume and transaction fees charged, company insiders believe that if Binance goes public, its value could be as high as US$300 billion.

That will make Mr. Zhao very rich. He said he is the largest shareholder of Binance.

As a rock star in the crypto world, he has 3.9 million followers on Twitter. On Twitter, his name is abbreviated as CZ. According to Binance spokesperson Ms. Jung, the company’s security staff had told him and other executives in the past that they refused to answer questions about their location.

She said that Mr. Zhao has been transparent about his position recently and has spent the past two years in the pandemic in Singapore. According to an acquaintance, he rides an electric scooter to attend the meeting.

He said that Mr. Zhao, 44, was born in China and moved to Canada with his parents when he was 12 years old. After studying computer science, he worked in financial companies in Tokyo and New York, including Bloomberg LP, where he developed futures trading software.

He said that he heard about Bitcoin for the first time in a poker game in Shanghai in 2013. Digital coins minted by computer programs have existed for several years. They lack the government's approval of issuing currency, but have attracted fans among computer-savvy people, including those who no longer had illusions about the financial system after the 2008 crisis.

Trading them is difficult. There are few platforms, and price fluctuations are notorious. The hacking of exchanges such as Mt. Gox has weakened confidence.

Mr. Zhao was attracted by the idea of ​​a decentralized currency that can be used anywhere without a bank or bureaucracy. "We can use this technology to increase the freedom of money for people all over the world," he said in an interview.

He sold his apartment in Shanghai—for Bitcoin—and worked for several crypto startups. He and a group of other programmers launched Binance in 2017.

It initially focused on trading Bitcoin and countless branches, but did not allow users to exchange digital coins for mainstream currencies. Mr. Zhao said that when it first started, it didn't need a bank account or headquarters.

Binance added nine languages ​​to its website to stand out from competitors that only use English. It has developed a platform, which several traders said is easy to use.

Binance raised $15 million when it first issued its own digital currency, BNB, in July 2017. A 2017 prospectus introduced its business, and other investors were mostly individuals in China.

Users have emerged from all over the world, including countries with underdeveloped financial systems such as South Africa, Russia, and India. Binance became the largest cryptocurrency exchange in six months and soon encountered problems with the authorities. In the summer of 2017, two months after starting operations in Shanghai, the Chinese government issued a ban on cryptocurrency exchanges, fearing that they would be used to illegally transfer funds out of the country.

Mr. Zhao said at a virtual technology conference that a Binance team composed of more than 30 people packed and moved to Japan. In 2018, the Japanese financial regulator warned the company not to conduct transactions for residents without a license.

After that, Binance stopped revealing the specific location. Mr. Zhao said that employees are scattered all over the world and work from home.

“Binance seems to be everywhere, but there is still nowhere to go,” said Aija Lejniece, a Paris lawyer representing a group of traders trying to recover funds. Commented, but previously stated that it immediately took measures to contact users affected by the interruption and provide compensation to “those who have experienced actual transaction losses.”

As enthusiasts develop new digital currencies, Binance has more trading products than many other exchanges. These include the fan tokens of European football clubs and Dogecoin, a deceptive currency popular among investors earlier this year.

Unlike stock exchanges that must obtain regulatory approvals in each jurisdiction, Binance spreads through a single trading platform Binance.com, which does not have a headquarters in any country. According to data compiled by the research company The Block, in 2019, one year after the Japanese regulator issued a warning to Binance, the platform still has user traffic from Japan. Binance spokesman Jung declined to comment.

Binance began to provide derivatives related to cryptocurrencies. With a deposit of 80 cents, customers can trade Bitcoin or other digital currencies equivalent to 100 USD. Binance has since reduced these products.

In 2019, Binance began to allow customers to exchange cryptocurrencies for traditional currencies such as U.S. dollars, linking exchanges with the banking system.

The former manager said that Binance paid influential people through the YouTube channel to make videos to show people how to get started. An outreach team also signed contracts with day traders in the Middle East and Africa markets, who operate groups on Facebook and other social networks.

Internally, the company allows teams to compete with each other and let the best growth strategy win. "We encourage internal competition," Mr. Zhao said.

Binance.com is also becoming more and more popular in the United States, but it turns out that maintaining its dominant position in the United States is more difficult. The U.S. Securities and Exchange Commission issued a document in April 2019 outlining tests to determine which digital assets may be considered securities subject to its supervision. Mr. Zhao guided American users to Binance. The United States provides a small number of cryptocurrency transactions and no derivatives.

At the end of 2020, the US Securities and Exchange Commission asked Binance. The United States has detailed information about its business, including who controls the user’s digital wallet, where the cryptocurrency is stored, and Binance details. According to a former executive, the United States reached an agreement with Binance Holdings.

Binance. The United States hired Brian Brooks as CEO in May 2021. Brian Brooks served as the acting director of the Office of the Comptroller of Currency in the Trump Administration and served as a counterparty to Coinbase Executives of Global Inc.

Mr. Brooks set out to raise funds from American investors. This will bring independent members to the board and dilute the ownership of Mr. Zhao. Mr. Zhao owns the majority of shares in Binance. According to former executives, the United States.

They said Mr. Brooks also wanted to control software running outside of China in the United States. A month before he started, Binance. The electronic information seen by The Wall Street Journal showed that American employees had to ask Shanghai employees to fix software problems that affected some American accounts. According to former executives, just this summer, developers in Shanghai maintained the software code that supports the digital wallets of American users and worked on the engine for coordinating transactions.

According to people familiar with the matter, in early August, when Mr. Brooks was about to end the $150 million financing with 12 American investors, he and Mr. Zhao had a conflict over the choice of new board members.

Some people say that Mr. Brooks believes that the lead investor will automatically get a seat and the board of directors will elect an independent director, but Mr. Zhao hopes to have the power to sign the appointment. According to people familiar with the matter, Mr. Zhao is also unwilling to move the code management staff from Shanghai.

Mr. Brooks resigned on August 6. According to people familiar with the matter, several members of the legal and compliance team have already left.

A Binance spokesperson stated that China does not have Binance technology or data. A spokesperson for Binance. Mr. Miller of the United States said: "All personally identifiable information of American customers is stored on the Amazon Web Services platform in Richmond, Virginia."

Mr. Miller added: "This is Binance. American executives control the company's development direction, assets, and supervision of customer accounts and data." He said, Binance. The U.S. has employees all over the world.

Binance. The spokesperson said that the United States is raising additional funds and plans to appoint two new investor board members who will provide additional oversight during the US IPO process. Mr. Zhao stated that he hopes to conduct an IPO before 2024.

Although Binance faces regulatory issues, it continues to swell. According to CryptoCompare data, in September, Binance.com's spot trading volume increased by 10% from the previous month, setting the largest monthly spot trading volume for the 15th consecutive month.

Mr. Zhao said that his goal is to achieve a more moderate growth rate. "We want other exchanges to be bigger so that we can distribute the load among users," he said.

This story was published from the feed of the wire transfer agency, and the text was not revised

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