Binance Uncovered

Exploring its Meteoric Rise and Present-Day Controversies

4 min readSep 18, 2023

In 2017, the digital financial landscape was revolutionized with the introduction of Binance. Deriving its name from a blend of ‘Binary’ and ‘Finance’, Binance signaled a fresh chapter in the digital currency saga. Founded by the forward-thinking pair, Changpeng Zhao (“CZ”) and He Yi, Binance swiftly gained traction among crypto enthusiasts.

Their primary offering, the Binance Coin (BNB), was birthed after a triumphant Initial Coin Offering (ICO) and was designed with pioneering deflationary attributes. Initially rooted in China, Binance soon shifted bases in response to changing regulatory climates, moving through Japan and Malta, before finally settling in the Cayman Islands.

Growth, Expansion and Challenges

By 2018, Binance had ascended to the zenith of global crypto exchanges. However, 2019 was marked by transformative strides. The launch of Binance USD (BUSD), a stablecoin pegged to the USD, was a significant milestone. This was soon followed by the migration of BNB from Ethereum to its proprietary Binance Chain. Furthermore, Binance.US was unveiled, extending its footprint to American shores. In collaboration with financial heavyweight Paxos for the BUSD initiative, Binance’s credibility soared. But it wasn’t all smooth sailing; a cyber breach saw 7,000 Bitcoins vanish from their vaults. Demonstrating commendable resilience, Binance ensured all affected users were fully compensated.

The wave of Decentralized Finance (DeFi) inspired Binance to introduce the Binance Smart Chain (BSC) in 2020. Designed as an efficient alternative to Ethereum, BSC promised faster transactions at lower costs. This innovation propelled BNB’s value to new heights in 2021. The year also brought its share of storms. An explosive Forbes article insinuated potential regulatory evasions by Binance, casting a veil of suspicion. Moreover, 2021 saw the IRS train its investigative lens on Binance.

2022 heralded the fusion of the original Binance Chain with BSC, rebranded as the BNB Chain. This integrated platform consisted of the BNB Beacon Chain for governance processes and the BNB Smart Chain for applications. But the road had its pitfalls as before. A sophisticated hack led to the unauthorized creation of a staggering 1 million BNB. The FTX Exchange’s downfall intensified scrutiny on centralized entities like Binance. Undeterred, Binance continues to showcase its resilience and adaptability.

Binance Faces Regulatory Scrutiny in the U.S.

The U.S. Securities and Exchange Commission (SEC) in mid-2023, filed a lawsuit against Binance and Changpeng Zhao, the founder of the exchange.

In the lawsuit, the SEC claimed, “Binance and its leadership have amassed vast sums, jeopardizing investor assets in the process.” The heart of the allegations is that Binance and Zhao unlawfully attracted investors, participated in various unauthorized investment activities, and misled them about the robustness of their trading surveillance systems, which the SEC claims were practically non-existent.

Reacting to the SEC’s move, Binance expressed its dismay in a statement, saying, “We find it regrettable that the SEC has chosen this path. We have consistently been transparent, collaborating with their inquiries and striving to address their concerns.”

Binance’s response sidestepped many of the SEC’s pointed accusations. Instead, the company emphasized that the regulatory body was taking a rather aggressive stance instead of adopting a more balanced approach given the intricate nature of blockchain technology.

Central to the SEC’s claims is the belief that Binance functioned as a broker-dealer, exchange, and clearinghouse without the necessary registrations. Specific attention was directed at the BUSD token, issued by Paxos, and Binance’s own BNB token. According to the SEC, these tokens were securities that should have been lawfully registered.

An ongoing assertion by Binance has been the distinction between Binance.US and its global counterpart. The SEC challenges this, stating that while Binance publicly announced it wasn’t catering to U.S. clients, Zhao and his team directed key investors to find ways around the platform’s restrictions. This isn’t the first instance where such claims have surfaced.

Furthermore, the lawsuit alleged that despite Binance assuring investors of measures against market manipulation, these controls were lacking. The SEC pointedly mentions the absence of checks against “wash trading”, a strategy where traders illicitly purchase assets from their own accounts, artificially boosting the asset’s value.

As the lawsuit progresses, Binance.US have felt the impact of the regulatory troubles the most, with the exchange having to let go of a third of its staff including its CEO, Brian Shroder, and other top executives. The exchange has also reportedly recorded its lowest transaction volume in over a year. It is left to be seen, what becomes of the ongoing lawsuit by the SEC, who has also filed other similar lawsuits against other top cryptocurrency exchanges like Coinbase and Kraken.




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