After FTX's collapse, the cryptocurrency market seemed to be dominated by Binance, the world's largest cryptocurrency exchange. However, less than a year later, Binance also ran into trouble.
Binance's cryptocurrency empire is teetering under the threat of enforcement action by US agencies. More than a dozen senior executives have left in the past three months and the exchange has cut at least 1,500 jobs this year to cut costs and prepare for a downturn in business. While Binance is still a significant player in the cryptocurrency space, its dominance is diminishing.
According to data provided by Kaiko, Binance currently processes about half of the direct buying and selling of cryptocurrencies, down from around 70% at the beginning of the year.
Given the scale of Binance's business, what happens to the exchange will have a huge impact on the cryptocurrency industry. Industry insiders and observers say that if Binance collapses, other exchanges will fill the void. But in the short term, the liquidity in the market could evaporate, causing the price of the token to fall sharply.
One institutional trader told The Wall Street Journal that his firm had conducted an emergency drill to quickly withdraw assets from Binance in the event of a crash.
In a message to employees last month, Binance co-founder and chief marketing officer Yi He vowed to overcome these difficulties.
'Every battle is a matter of life and death, and only we can defeat us,' she wrote in the message. We've won countless times, and we're gonna win this one. The message was seen by The Wall Street Journal.
Binance frequently invests in third-party cryptocurrency projects and other projects. Binance invested in X (formerly Twitter). Binance co-founder Changpeng Zhao is the most well-known figure in cryptocurrency circles. He goes by the name CZ on X and has 8.6 million followers.
Anthony Georgiades, General Partner at Innovating Capital, says: "It is impossible to quantify what impact Binance would have on the industry if it disappeared, as this company has played a huge role in driving innovation and growth." Innovating Capital is a fund that invests in early-stage growth companies.
The Justice Department has been conducting a years-long investigation that could result in criminal charges and billions of dollars in fines against Binance and Zhao, according to people familiar with the matter.
Binance also faces a lawsuit from the Securities and Exchange Commission alleging that the company and Mr. Zhao operated illegally in the United States and misused customer funds. The company acknowledged past mistakes but said customers' money was safe and it was committed to operating in compliance.
"We have worked tirelessly not only to learn from the past, but to continue to invest in the teams and systems that ensure our users are protected," a Binance spokesperson said.
Binance was founded in China in 2017, though the company claims to have no headquarters and employees all over the world. Binance's global website is accessible to traders almost anywhere, but that number is declining as its business is banned in many countries. In Europe, more countries are closing their doors to the exchange.
In the United States, Binance's activity on its local exchange, Binance.us, has largely disappeared. The exchange's chief executive, head of legal and head of risk have all recently left.
In a Binance.US online conference a few days before his departure earlier this month, Binance.US CEO Brian Shroder said the exchange's revenue had fallen 70 percent so far this year, according to a presentation seen by The Wall Street Journal. The executives looked on in dismay.
Mr Shroder told staff that Mr Zhao needed to resolve "his regulatory issues, put his holdings in Binance.US into a blind trust or sell his holdings" in order for the US platform to maintain its growth plans. He said the measures would allow the company to unclog banking relationships and obtain licenses. Zhao Changpeng is the majority shareholder of Binance.us and Binance.
A spokesman for Binance.US declined to comment.
According to people familiar with the matter, Binance and the U.S. Department of Justice have been in talks for months, and Binance has been discussing internally whether Zhao should step down.
As previously reported by The Wall Street Journal, Zhao's insistence on remaining in charge of Binance has frustrated some executives, who believe his departure would improve Binance's chances of weathering the crisis.
The turmoil at Binance has also hurt employee morale.
At a summer meeting after the layoffs, Binance employees took the rare step of criticizing Mr. Zhao, according to communications reviewed by The Wall Street Journal.
An anonymous employee sent a message to Zhao Changpeng at the all-staff meeting: "Some people who were laid off did not get any advance notice, and they found that they were laid off on the same day just because they could no longer log in to the company system." Is there any respect in treating them like that? Is it respectful to give them only two weeks' severance pay?" Nine other employees agreed with the question. The question went unanswered.
In late August, the Wall Street Journal published a story about Binance customers using sanctioned Russian banks, which dealt another blow to Binance. According to the Wall Street Journal, the US Department of Justice has also been investigating Binance for possible violations of US sanctions against Russia.
A person with direct knowledge of the matter said that after the Wall Street Journal article was published, the U.S. Department of Justice asked Binance about the use of the banks, and Binance's chief compliance officer Noah Perlman met with DOJ officials to discuss their concerns.
The person said that pressure from the U.S. Justice Department was part of the reason for Zhao's decision to begin winding down Binance's operations in Russia; Russia was once one of Binance's most important markets. In the two weeks that followed, Binance barred clients from using the sanctioned banks and forced out the executive in charge of its Russia operations. The company said it was considering a full exit from Russia.
In public, Mr. Zhao remains defiant. The day the Russian executive left, he wrote on X: We are a community, keep building!
Privately, however, Mr Zhao has been hiring new lawyers to handle the DoJ case, according to people familiar with the matter. He has been at home in the United Arab Emirates; The United Arab Emirates has no mutual extradition treaty with the United States.