In August, before it was fully clear the U.S. Department of Justice (DOJ) would bring charges against Binance, news leaked that the federal prosecutors building the case were worried an indictment could cause customers to panic and withdraw their funds en masse, potentially creating panic in the crypto markets, wider industry contagion or even a liquidity shortfall.
On Tuesday, the DOJ reached a "historic" settlement with the world's largest exchange. The stated crimes are sweeping, and the penalty is massive. Binance will pay a $4.3 billion fine for violating money transmission laws and U.S. sanctions, and its CEO, Changpeng "CZ" Zhao, who founded the firm in 2017 and built it into a behemoth, was forced to resign.
Withdrawals over the past day have ticked up to $566.8 million, according to DefiLlama's centralized exchange dashboard.
Customers rushing to yank their money out of FTX ruined that exchange because its operators fraudulently embezzled the money. On the other hand, at this point, Binance appears to be sound. Its latest "proof of reserves" report, an imperfect but voluntary attestation of an exchange's holdings, shows the exchange holds $65 billion worth of crypto assets alone. DefiLlama counts it at $68.4 billion.
Further, Binance appears to be overcollateralized for many of the largest assets on its books, like bitcoin (BTC), ether (ETH), tether (USDT) and others, meaning Binance's net balances are more than it owes customers. In other words, if every Binance customer withdrew every bitcoin they owned, the exchange would have bitcoins to spare.
The loss of Zhao will be felt. He was not the firm's figurehead, but its leader. He communicated to his fans, supporters and users in figurative language – often being able to blow off bad news with a tweet. Many times this year, when the bad news kept coming, he'd tweet out a single number: "4." That stood for his four principles, to ignore the "FUD" — or fear, uncertainty and doubt" — and remain positive.
"Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself," Zhao wrote Tuesday on X/Twitter.
Zhao is personally on the hook for $200 million in civil and criminal penalties, which for an early crypto adopter whose net worth ranges from $17 million on the low end deca-billions is a small price to pay to settle charges from a coordinated investigation involving the DOJ, CFTC and two enforcement departments under the Treasury Departments, FinCEN and OFAC.
Binance, no stranger to regulatory action, appears to have had a contingency plan in the works for a while, and reacted quickly to its decapitation. Binance's head of regional markets, Richard Teng, who was hired in 2021 and was a rumored CZ successor, will step up as CEO. This quick promotion, which was already in the public consciousness, has done a lot to stymie disorder – especially considering Zhao might spend the next 18 months to 10 years in a U.S. federal prison.
While Yi He, Zhao's co-founder, rumored romantic partner and "chief customer service officer" (a self-defined role that encapsulates the firm's "business, marketing and branding strategy," according to her company bio), appears to be staying on. Although Zhao won't be allowed any involvement with Binance for at least three years, according to the government's terms, He could potentially act as an informal conduit between the company and its largest shareholder, Zhao.
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– D.K.
daniel@coindesk.com
@danielgkuhn
