The Fate of Crypto Rests with Changpeng Zhao of Binance

By Will Gottsegen

T here was a moment, late last fall, when Changpeng Zhao seemed like the smartest guy in crypto.

The news was sudden and definitive: Binance, Zhao's international trading post, announced plans to buy its biggest rival, FTX, led by the young American Sam Bankman-Fried, or SBF. It looked like a world-historic chess move. Not only was Bankman-Fried giving up on his once-ascendant businesses — he was actually bending the knee, selling whatever was left of the apparently ailing FTX for scrap.

Then, as quickly as the deal was announced, it evaporated. Binance canceled the very next day, citing "issues are beyond our control or ability to help." On November 11, FTX collapsed, taking about a trillion dollars off the estimated global value of all cryptocurrencies and forever staining the industry's reputation.

SBF, the rumpled Silicon Valley wunderkind, the dutiful son of two Stanford legal scholars, has become one of the most notorious alleged criminals in the history of finance. An expanding constellation of books, TV shows, and movies about the FTX fiasco will no doubt cement SBF's place in the culture for years to come. But if you don't follow crypto, you’ve likely never heard of CZ (like Bankman-Fried, Zhao goes by his initials), even though his business empire and personal wealth outmatched SBF's. The elusive CZ has always been the real crypto kingpin — and the mystery is not an accident.

But now, as the head of the largest and most important exchange in an industry under severe scrutiny, CZ is more exposed than ever: in late March, Binance was hit with a lawsuit from the Commodity Futures Trading Commission (CFTC) alleging a massive scheme to intentionally evade U.S. laws. And Binance is already under investigation by the Justice Department, the IRS, the SEC, and other regulators across the world. The spotlight CZ has avoided for so long has finally caught up to him in the wake of SBF's implosion.

"Clearly CZ has been lurking in the shadows," Sen. Chris Van Hollen, one of the lawmakers who has expressed concern about Binance in the past, told me. "It's hard to put a finger on where [Binance is] operating, what they’re doing."

And that matters as concerns about the stability of where we park our money are higher than ever. "We just went through the SVB collapse, and that was a regulated bank, at least there was some review process," Van Hollen says. "In [Binance's] case, we know nothing. This is a black box. So I worry about the potential for it to go down. A lot of people could lose a lot of money."

So, who is CZ? And what has he been hiding?

"[I’m] just a regular guy doing what needs to get done," CZ wrote in a 2018 blog post. "That's all."

WHAT WE DO KNOW IS THAT Zhao was born in the Chinese town of Qing Kou, in Jiangsu Province, in the late ’70s. He and his family reportedly left the rural area for the city of Hefei before emigrating to Vancouver when Zhao was 12, two months after the Tiananmen Square massacre.

Zhao had a number of part-time jobs as a teenager, including, most famously, a two-year stint at McDonald's, where he's said he made $4.5 Canadian dollars an hour. The McDonald's job is a significant part of the CZ mythos — the fast-food chain is something of a meme in the crypto world, a symbol of the fate that awaits failed day traders.

He then ended up following in the footsteps of his academic father, studying computer science at McGill University in Montreal. He cut his teeth after college as a software developer for Bloomberg's trading division. CZ's direct supervisor at Bloomberg described him to me as "a smart software technologist with excellent people skills," but added that he's "not the classic Wall Street asshole" and "not the classic technology sociopath."

After his time at Bloomberg, CZ moved to Shanghai, co-founding a financial software company called Fusion Systems. After learning about Bitcoin at a poker game in 2013, Zhao immediately sold his place in Shanghai, put a million dollars in Bitcoin, and left his post at Fusion to break into the crypto industry. He spent the next four years at different crypto startups before co-founding Binance in China in 2017, with dreams of creating an international hub for digital assets.

The key to the site's success is that it works as an on-ramp to the entire industry: if you want to get your hands on some Bitcoin or use any kind of crypto-based web application, you’ll need to first take your non-crypto money and turn it into crypto. For tens of millions of users around the world, Binance is the place to actually do that — a tool with enough accessibility for newcomers and enough fine-tuned analytics for professionals. It was a hit almost immediately, accruing 120,000 users in its first 45 days of operation. Now, that number is more like 120 million, and Binance is by far the largest exchange in crypto. Thanks to his controlling stake in the company, CZ is now among the 60 richest people in the world.

CZ started Binance with a woman named Yi He, who has had a few different roles at the exchange. Once a television broadcaster in China, she was named last year with stewarding Binance's venture arm, along with its $7.5 billion war chest. Now, she's the company's chief customer service officer — part of the minority of women in crypto leadership roles. "Forget your gender," she once said in an interview. "Don't focus on the fact that you’re a woman in a man's world. Instead, focus on how to be a good business leader, regardless of being a man or woman." She has also been involved romantically with Zhao: the two share two young children, though not much is known about their relationship.

Almost immediately, it was clear Binance leadership played by its own rules. When China began threatening a crackdown on the entire crypto industry just a few months after Binance's founding, Zhao just took his business to friendlier jurisdictions — first moving the company HQ to Japan and then to Malta. When even Malta's regulatory requirements reportedly became too stringent for Binance, the company set off on the run once again.

DURING HIS RISE, SAM BANKMAN-FRIED was friendly with politicians and journalists, making strategic donations on both sides of the aisle and supplying cash to major media outlets like ProPublica, Semafor, The Intercept, and, secretly, a crypto news outlet called The Block.

CZ has taken a more blunt approach. When Forbes released an expose in 2020 about Binance's alleged attempts to avoid regulation in the US, Binance simply sued Forbes for defamation; one year after the company withdrew the suit, Binance announced plans to purchase a $200 million stake in the media giant just as it was preparing to go public. The investment never went through, Forbes confirms to me, since the plans to go public eventually collapsed, but the announcement was a power move if nothing else: What he lacks in influence over the courts and favor with traditional media, CZ has always made up for in sheer purchasing power. (It's no wonder, then, that Zhao didn't want to talk to a traditional outlet like Rolling Stone — through a Binance representative, he declined multiple interview requests.)

CZ has certainly not remained silent, though. He's prolific on his blog and on Twitter, where he's at home with the hardcore, high-risk crypto traders who speak in memes you’d only understand if you’d been following along for years. When an anonymous YouTuber made a meme nodding to outages on Binance's website, CZ referenced the meme in official company policy. It signaled he could play along.

This fluency with the culture of crypto has bought him a kind of credibility within the industry, even as he has refused to reveal details about the structure of his businesses. Because Binance operates outside of the US, it has so far not been beholden to the American regulatory regime and hasn't needed to make rigorous disclosures about how it functions. Even if Coinbase tries to claim it has "no headquarters," it's still a public company incorporated in Delaware, and so is legally accountable to its shareholders and customers. Binance, although it has a US division, doesn't need to adhere to the same set of regulations. While you can find Binance offices in places like Paris, Dubai, and Abu Dhabi, there is still, in 2023, no straight answer to the question of where Binance is actually headquartered. "[Crypto] has different rules in different places," CZ told Fortune. "So it's not so much that we want to bend the rules or even avoid them, we just want to look for places that are more favorable." (A spokesperson for Binance told me, "We are in the midst of a corporate restructuring, the aim of which is to provide regulators with further clarity about our organization.")

It hasn't been clear where exactly CZ lives, either. Though earlier this year he told Fortune Crypto in a rare interview that he splits his time between Paris and Dubai.

"CZ's greatest skill is that he's got no commitment to anywhere," said Rohan Grey, a law professor at Willamette University and frequent crypto commentator. "That's all you need to play the game of regulatory arbitrage. If you’re a cowboy with no commitments to any town, then you can play a Spaghetti Western role."

The implicit bet is that if customers can't figure out where Binance is physically located, maybe regulators can't, either. Although, in a statement accompanying March's charges against Binance, CFTC Chairman Rostin Behnam made a point of saying "there is no location, or claimed lack of location, that will prevent the CFTC from protecting American investors."

BUT NOW THE COWBOY HAS LANDED in the US government's crosshairs. This past March, Sens. Chris Van Hollen (D-MD), Elizabeth Warren (D-MA) and Roger Marshall (R-KA) co-signed a letter expressing concern about "Binance's role in evading regulators, moving assets for criminals and sanctions evaders, and hiding basic financial information." And though the company was quick to say the letter was based on "incorrect or incomplete" reporting and "misconceptions" about the company, it marked the clearest sign yet that lawmakers have their eye on Binance in the post-SBF era.

Zhao and his businesses are still grappling with the consequences of that aborted 24-hour FTX deal. The crypto world is in shambles, having lost much of the momentum that sustained it through 2021 and early 2022. Prices are down across the board. Companies are abandoning their crypto partnerships (remember Instagram NFTs?). And U.S. regulators have embarked on what some see as a targeted campaign to contain the damage caused by FTX and the disgraced Bankman-Fried.

The murky divide between Binance and Binance US is part of what has regulators worried. For the first two years of Binance's life, all customers were funneled into the same website — but in 2019, when Binance decided to start vetting U.S.-based customers more thoroughly, it set up an entirely separate entity and banned American traders from the original Binance platform. The issue was that anyone could still theoretically access the international product (with its lower fees and more relaxed approach to identifying users) from the U.S., thanks to a relatively simple technical workaround known as a VPN.

CFTC Commissioner Christy Goldsmith Romero tells me she's seen this same pattern — of international companies either intentionally or unintentionally dancing around U.S. regulations — play out across the industry, though she wouldn't comment specifically on the active case against Binance. "I see the same risks I saw in 2008 with crypto, along with some novel risks. If you want the benefits to be able to access U.S. markets, then you’ve got to go through the necessary steps to be able to have that access, and that requires regulation." CZ, for his part, has consistently said that Binance is doing everything it can to respect U.S. laws. When it comes to blocking American VPN users from international trading services, Zhao blogged in March that he is "aware of no other company using systems more comprehensive or more effective than Binance."

Not everyone agrees about why Binance seems to be such a target for the U.S. government right now. For SEC Commissioner Hester Peirce, a Trump appointee and longtime defender of crypto, the lack of clarity around regulation is really more on the government than the private crypto sphere. "We’re lying in the bed that we’ve made, which is that we haven't provided a way for entities that want to trade crypto assets to come in and register," she tells me. "And if we did, then a lot of these questions around where different operations were headquartered would probably have to be answered."

But for others, including lawmakers like Sens. Warren and Van Hollen, Binance's actions are cause for genuine concern — evidence that reflects "a blatant attempt to dodge the world's financial regulators."

AT THE VERY BEGINNING OF THIS YEAR, Zhao tweeted out four simple maxims, resolutions for a new year:

Will try to keep 2023 simple. Spend more time on less things. Do's and Don'ts.

1. Education

2. Compliance

3. Product & Service

4. Ignore FUD, fake news, attacks, etc.

In the future, would appreciate if you can link to this post when I tweet "4".

The fourth of those pillars — "Ignore FUD, fake news, attacks, etc." — seems to be his favorite: a mandate to shrug off the critics. (FUD, a common initialism in crypto, stands for fear, uncertainty, and doubt.) He's since deployed it constantly.

"May the 4s be with you," he wrote on Star Wars Day. "Ignore FUD. Keep building!" he posted in December of last year, just as blockchain watchdogs were raising the alarm about traders’ suddenly pulling billions of dollars off the platform with no explanation. (He appeared to refer to Bloomberg's report about the missing $1 billion as "FUD," too.) When it happened again a few months later in response to the CFTC lawsuit, CZ sent a tweet about "traditional media writing with false narratives."

But as CZ dodges and weaves, the industry holds its breath. CZ is responsible for more than just Binance, and crypto can't take another reputational hit on the scale of SBF. "There is a sense in which FTX imploding so spectacularly helped excise some of the most egregious rot, and take a hit that the rest of the ecosystem didn't want to, and was trying to avoid," speculated Rohan Grey. "So CZ has bought himself a bit more time on that front, but I don't think that there's any reason to think that the underlying health of their business model is better."

Binance's market share is still enormous — two-thirds of all crypto trades happen on its website — but for Grey, as for other commentators, it feels like the regulatory grace period may be coming to an end. Amid these mounting threats, CZ has hired white-collar defense lawyers Latham & Watkins to represent him personally, and added hundreds of employees to Binance's compliance department. The company's head of financial crime compliance recently told The New York Times that Binance sees itself as a tech company, which may help to explain its approach. "They break things," he hedged, alluding to the tech-world principle, "move fast and break things." "All the exchanges have done it."

For CZ, though, it's a question of stoicism.

"In this journey towards freedom of money," he wrote in response to the CFTC lawsuit, "we do not expect everything to be easy."

Changpeng Zhao.