Last week, at the Consensus: Singapore 2018 conference, CryptoGlobe got the chance to interview one of the most successful and recognizable figures in the crypto space, Changpeng Zhao (although he prefers his nickname "CZ"), the co-founder and CEO of Binance, the world's largest crypto exchange.
During the interview, we talked about a variety of interesting topics, including how CZ got his start in crypto, what he thinks about the "trans-fee mining" business model, Binance's interest in decentralized exchanges, the role of crypto derivatives exchanges such as BitMEX, regulations regarding fiat-to-crypto exchanges, stablecoins, 'fake' trading volume, Binance's coin listing process, the future of Binance, and when CZ expects the next major bull run for Bitcoin.
CZ started his career building trading engines at the Tokyo Stock Exchange, Bloomberg Tradebook and Fusion Systems. Then, in 2013, after learning about Bitcoin, he worked at top companies such as Blockchain, OKCoin, and BijieTech. Finally, in July 2017, CZ founded a new "pure crypto" exchange called Binance (the name short for "Binary Finance").
Less than eight months after raising funds with the BNB token via an ICO, CZ had managed to turn this startup into the world's largest crypto exchange and quickly led Binance to a $200 million profit in Q1, famously more profitable than Germany's largest bank.
CryptoGlobe: How did you get into crypto?
CZ: I learned about cryptocurrency from Bobby Lee and Ron Cao in 2013. I read the white paper. There weren't a lot of documents back then. So I read the white paper, understood it, and then went to a couple of conferences. After the second conference I went to in Vegas in 2013, I said, "OK, I'm gonna do this full time"; so I quit my job, and jumped in. That's it.
CG: The exchange space is getting highly competitive; do you see trans-fee mining as a threat to your business model or do you see it as damaging to the ecosystem?
CZ: I think now it's very clear that it's damaging. It's not a threat. The exchanges will try to do that. The volume at the exchanges that have tried that have all come down. It's a very complex way of raising money. The law of supply and demand tells us that since there's always more platform tokens being issued, you can almost guarantee that the price will go down over time. So, the way it's done is not correct.
CG: Binance is venturing into decentralized exchanges; do you see that becoming a lot bigger?
CZ: Sure. I think decentralized exchanges are the future, but it's going to take a few years to get there. We contribute to this development. But the winner there is still not clear. And for the foreseeable future, I think the volumes will not be as high. So, it's more like an experiment. I think it’s more innovation; we're still at the early stage of the industry.
Right now, most of the money is still in fiat. So, I think the sweet spot is actually to do the crypto-to-fiat exchanges.
CG: Regulation seem to create friction at the crypto-to-fiat boundaries; how's your progress in setting up crypto-to-fiat exchanges?
CZ: So, it's looking pretty good, actually. Fiat exchanges do take longer to set up because we actually don't control some of the parts, especially regarding bank accounts, fiat gateways, etc. So, it's a little bit tricky. It's a lot more tricky than pure crypto because with pure crypto, we control everything; the blockchain does not reject us... Things are coming along quite well.
And for Singapore, we're doing a closed beta already. So hopefully, if things work out, in a couple months, we can release it publicly. We're fully compliant, obeying rules everywhere… But I think there is very good progress around the world that's being made. There are more favorable regulations coming out... And the regulated stablecoins coming out, those are very good for fiat. So, I think things are looking pretty good.
CG: There's been an explosion of stablecoins... Circle USDC , CabonUSD , Gemini dollar ... Do you have any favorites? How do you see stablecoins affecting the crypto markets?
CZ: I think stablecoins are huge. I think people don't understand the impact of regulated stablecoins. I said this at dinner as a joke: "If people understood the impacts, the Bitcoin price would be going up now." Stablecoins are a very good channel for fiat money to come in and spread around the crypto space. So I think that's a very very positive thing. And we're always very pro stablecoin. We always want to promote and help them grow. I never pick favorites. I also almost never comment on coins, which one is good, which one is bad. If I say that, people actually buy and sell according to that. And then is it market manipulation?
We want to support as many of them as we can, and then let the market decide... There's a lot of operational challenges for the new stablecoins that we haven't seen in real life... How easy is it for people to do KYC? To what extent do they accept people from outside their respective countries? Is the deposit and withdrawal process quick, and is there a limit? Can they handle one million, ten million, or hundred million users? These things you can't really figure out just by looking at the specs. So, we'll see.
CG: There have been numerous reports that estimate up to 60% of the volume on some exchanges are fake. Obviously, "fake" needs to be defined, but what's your view on that, and do you think this is happening on Binance?
CZ: The way you asked the question showed a lot of insight. So, how do you define fake volume or wash trading? If one trader buys from another trader and then sells back to that trader, from an exchange perspective, is that bad? And up to what limit do you say it's wash trading? If you define it as two accounts trading against each other for $100K and then we freeze the account, what are they going to do? They're gonna to go to $99K, and stop. So, it's quite hard to fight and define this problem. So, we actually have to go through a lot of very complex mechanisms to prevent it. Now, if the exchanges are doing that themselves to get a high volume, that's bad. No exchange claims to do that; some do, but we don't. And then there are other exchanges that do transaction mining... they incentivize those kinds of behaviors. There's a lot of that going on. We fight it very aggressively. But it's not an easy thing because it gets creative very quickly.
The other thing is price manipulation, right? So, some guys only use Binance. So when they want to buy a coin, they just place market orders. And the price, of course, goes up on our exchange versus other exchanges. And we have seen some really large orders. At what point do we define that as market manipulation? And other exchanges, when they list a new coin, it could be that a lot of people buy that coin, and the price goes up. And then there's all the guys doing arbitrage. So, it's very hard to define. But we work very hard to fight against it...
We're not perfect... There are some project teams that list on Binance, then they decide to pump up the volume a little by hiring a market maker. The market maker exists in traditional markets as well. And sometimes they tell us, sometimes they don't. So it's kind of really hard to figure out. So for us, we just see a bunch of the orders come in, but we do work really hard to fight this.
CG: Coin listings -- what is your process for vetting coins, and is it transparent and open?
CZ: I wrote a very long article about this on LinkedIn. But very basically, we use a black box model where we ask projects to submit a bunch of information, and then how we decide after that is kind of a black box to them. But fundamentally, we look want to find good projects with long term growth. And we don't have any hard requirements. Because the minute we publish a requirement, somebody's going to game it. For example, if you say you gotta have a telegram group of 10,000 people, then people can buy it or 10,000 Twitter followers, people will have it, instantly. So yeah, so we don't have any public metric. But we do look at the project team. We like teams with history. We do look at the product fit. We want to see a working product, ideally, and we want to see actual users using the product… We look at source code on GitHub. We go into their communities. We ask them questions in the telegram groups to see what level of support service they're providing...
So far, the results are very good. We do make mistakes. Sometimes we list a coin that doesn't perform well, especially in the market for the past six months. But so far, I think the coins we list have performed very well overall. And so I think the results speak for themselves.
CG: Where do you see Binance in five years?
CZ: In five years, I think the industry will be so much bigger. So we just want to provide a few key services in this industry. So, right now, we have a decent exchange, and we're expanding both on the fiat and the decentralized exchange space. We want to continue to be a key player in the exchange space. I think wallets are very interesting and very important. So, we partnered with Trust Wallet, which is a very good product. They haven't done any marketing, and so we want to develop the wallet space. We want it to be a popular wallet, and we probably will do multiple wallets, as well as like hardware wallets, institutional wallets...
And we're stabbing a few other areas that we know less well through the Labs initiative, where we'll just invest in those projects for that coin, and help them with liquidity and listing, etc... help them with token economics... We also want to push education and charity, and those are just social responsibilities. So we will continue to do those things, and I think the industry will be so much bigger in five years. The tide will rise. And we just got to stay afloat. That's it. And I think we'll be a pretty big ship!
CG: So you stand by your 1000x increase?
CZ: Absolutely! I think it's gonna be much more. So I'm gonna keep that tweet, and when we get there, I really don't know when, but we when get there, I'll retweet that tweet.
CG: When is the next bull market starting?
CZ: I don't analyze markets because anything I say will be like super scrutinized, and then people read into it, and they do buy and sell based on what I say. As an exchange operator, I kind of influence price, but if you look at the chart, what is very clear right now is that we've seen a very strong $6000 support in 2018, whereas in 2015, the support level was $200. I look at this on a yearly basis. I don't feel that we're in a bear market at all. Yes, OK, if you look at a weekly or monthly basis, yes we had a bear market a little bit, but it was only $20K for a week or so... I always look at the long term. I never trade myself. I always buy and hold.
So, I think that any minute the bull market will return, and historically, October to December are the good months. Before Christmas are usually the months when the markets go up very often, but I am not saying that it will this year, or that it will not. I don't make predictions. I just react.