TOKYO/HONG KONG — Binance, the world’s largest cryptocurrency exchange by trading volume, is looking to set up physical headquarters in multiple jurisdictions in a major concession to regulators.
Despite operating out of dozens of countries, the Cayman Islands-domiciled company does not have any head offices registered in any country, creating a decentralized structure that CEO Changpeng Zhao says baffles regulators.
“We don’t have a headquarters, and a lot of regulators scratch their heads,” Zhao told Nikkei Asia. “They couldn’t really understand an organization like that. So now we’ll go for a standard structure that regulators around the world understand and are comfortable with.”
The company has yet to decide where it will set up headquarters, the CEO said.
After seeing $3.88 billion in average daily trading volume last year, according to the company, Binance marked its fourth anniversary this month amid a slew of regulatory action. Authorities in Japan, Italy and the U.K. issued warnings over the company’s unauthorized cryptocurrency trading and derivatives activities, triggering the flight of some payment partners and institutional investors.
Despite this, Zhao said he is not worried about rivals capitalizing on Binance’s regulatory woes. “We have a whole ecosystem that’s very hard to replicate in one go,” he said.
That ecosystem includes crypto futures trading, a digital wallet and payments service, over-the-counter trading, and a credit card backed by Visa.
Binance’s next target is the market for nonfungible tokens, known as NFTs, which are unique lines of code used to certify the ownership of digital assets, such as artwork, photos and videos.
Nevertheless, the pressure from regulators has shifted Zhao’s focus.
The CEO said he spends most of his time these days hiring — not engineers and developers, but traditional bankers and former regulators to beef up his compliance team. The company currently has around 2,700 employees.
“Every country’s looking to have a different set of regulations and they want to meet somebody face to face locally,” he said. “We need to hire more teams in each country, and we want those to be seasoned compliance people so that they speak the same language as the regulators.”
For example, Binance U.S., a separate entity from Binance, hired former U.S. comptroller Brian Brooks as CEO in May. He joins Manny Alvarez, who led California’s financial regulator, and former Senate finance committee chair Max Baucus at the company.
“We want to become one of the most compliant and most heavily regulated crypto exchanges in the world,” Zhao said of his company’s strategy.
Zhao estimates that at least a quarter of his company’s resources and manpower are spent on compliance and security.
Other headwinds for Binance and the broader crypto industry in the past three months include China’s crackdown on bitcoin miners and an order for banks to halt crypto transactions, as well as Tesla walking back its announcement that it would accept bitcoin payments for vehicles due to environmental concerns. Cyberattacks on critical infrastructure and public companies in the U.S. that demanded cryptocurrency ransom payments also generated negative publicity. Bitcoin has lost almost half its peak value from April, an all-time high of $64,805.
Zhao said he is taking these challenges in stride. Binance is not a conduit for hackers, he said, because the exchange is known for cooperating with law enforcement authorities. China’s negative attitude toward crypto, meanwhile, is “very consistent” with Beijing’s policy.
“China has always had a mandate for wanting the renminbi to be the global dominant currency,” he said. “They want to promote blockchain technology, but the Chinese government has never really promoted bitcoin.”
Zhao says he is hopeful that central bank digital currencies can help the crypto industry flourish by validating blockchain technology and providing an on-ramp for mainstream use.
Central bank digital currencies “will have the credibility [of being] backed by a central bank, which probably carries higher credibility for most average people today, so they can also push the adoption rate,” he said.
Hours before Zhao spoke with Nikkei Asia, FTX Trading said it had raised $900 million, valuing the world’s No. 4 crypto exchange at $18 billion. Along with that news, however, came the announcement that FTX founder Sam Bankman-Fried had bought out Binance’s stake in the company, raising speculation that FTX wanted to distance itself from Binance’s regulatory woes.
Zhao said the investment had simply run its course but acknowledged that the overlapping businesses and competition between FTX and Binance prompted him to exit the investment. “Even after we invested, I tried not to ask for too much information,” he said. “I never really feel comfortable asking for a lot of details.”
Still, he welcomed FTX’s fundraising result. “It shows that crypto exchanges are valid businesses that people invest in,” Zhao said.
Zhao says that what is good for the industry is good for Binance. Just over a decade after bitcoin’s creation, the crypto industry is now worth $2.5 trillion, a tenth of the global financial services market.
Zhao added that fundraising for Binance “is never out of the question.” A financing round for its U.S. arm is underway and it is expected to eventually go public.
“I think we’re not really short on money. … I think it’s really just for credibility, building relationships, market penetration and partnerships,” he said. “We’re not super actively doing that, but we’ll never rule it out.”