The Breakdown - Binance Execs Race for the Exits

Episode Date: July 7, 2023

Fortune dropped a bombshell on Thursday, reporting that numerous executives had left Binance in a very short period of time. While all those execs tweeted that there was nothing conspiratorial or scandalous in their departures, the community isn't convinced.    Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribeto the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Friday, July 7th, and today we're talking about Binance executives absolutely racing for the exit. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Well, friends, I had a plan for the next couple of days. I was going to do a whole episode about the Block 5 bankruptcy and about how everyone hates that. And then maybe we were going to do a weekly recap about Circle moving into Japan and what

that might mean and maybe some other international catch-ups. But then, as so often happens, the industry just slammed a totally different set of priorities. On Thursday afternoon, Fortune magazine's Jeff John Roberts mentioned here, specifically as someone who is a historically credible source, rocked the crypto industry with news that multiple senior executives had resigned at Binance. The choice of headline from the typically even-handed publications set the tone. They wrote, Binance plunges into crisis as senior execs quit over CEO CZ's response to Justice Department investigation. So according to the Fortune article, at least three major figures

within Binance have now left the exchange this week. That includes the top lawyer at the firm, General counsel, Han Ing, Chief Strategy Officer, and very overworked crisis communications manager Patrick Hillman, and SVP of compliance, Stephen Christie. Global Vice President Stephen Milton also left the company in June, according to his LinkedIn profile. Finally, Matthew Price, a former IRS agent and senior director of investigations at Binance, also recently left the firm after being hired in 2021 to overhaul global investigations and intelligence. Fortune described the mass exodus as plunging Binance into full-on turmoil. According to an anonymous source from inside Binance, the senior figures had resigned over CZ's response to an ongoing investigation

by the Department of Justice. No detail, however, was offered on why the executives were troubled by the handling of that investigation. Although no DOJ charges have been filed so far, the investigation has been widely reported, using unnamed sources presumably from within the agency. The investigation is believed to involve allegations that Binance misled U.S. officials on the state of compliance at the exchange, as well as allegations that money laundering and sanctions violations were allowed to take place on their platform. Evidence from ongoing SEC and CFTC lawsuits suggest that Binance knew about the alleged financial crimes using the exchange and prioritized retention of clients over compliance. Now, of course, over the past six months, Binance has attempted

to characterize these issues as in the past prior to a company-wide improvement in compliance procedures. Aside from enforcement actions from U.S. regulators, Binance is also reportedly under investigation in France and Australia and is withdrawn from registration in several European jurisdictions in recent months. Now, when it comes to these executives, all of them tweeted some version of the idea that the media was making hay for no reason. Patrick Hillman wrote, Apologies for any typos, but I was not expecting to be tweeting about this today. It's true that I am leaving Binance, but I am doing so on good terms. I continue to respect and support CZ, and I'm grateful for having had the incredible opportunity to work under his leadership.

I've been here for two years, and it's simply time for me to move on to the next challenge. I've taken this company through a lifetime of industry crises and regulatory challenges, from 3AC to FTX. Despite all of these challenges, the company has continued to grow and thrive. My wife is literally going to give birth to our second child any hour now, literally, so the time is right for me to step aside. I will continue to cheer on my colleagues at Binance and support this industry as it matures and evolves. Blockchain and crypto is here to stay, and I am excited to watch it explode in the years ahead. Now, holding aside whatever you think is going on behind the scenes, I want to just take a moment to congratulate Patrick on the birth of his second

child, that is always a blessing and something to be excited about. Stephen Christie also wrote a long tweet confirming that he was leaving his post as a senior compliance officer. He said, I usually don't tweet much and I try to keep a low profile, but wanted to clear the air about a couple of articles that were printed today. I can confirm that I am indeed leaving Binance, but the reasons for my departure are very different than what was reported. I've been in crypto compliance since 2015 when I joined Zappo, spending the last six years straight leading and growing the compliance functions at Cracken and Binance without a break. At this point, I'm I am simply tired. And, according to my wife, fat, I need to lose some weight. And apparently I need

to start helping around the house do chores and start making dinner a few times a week. As any happily married person out there knows, happy wife equals happy life. So my departure is far less sensational than any article might make it out to be. I've enjoyed my time at Binance. I've learned more in the last year plus than any other time period in my career. I am proud of the compliance program at Binance, the work that is done day in and day out, and have nothing but respect for the highly talented individuals that dedicate themselves to doing the right thing. compliance function is in great hands with Noah Perlman. The executive leadership team at Binance has invested more into compliance the people and the technology than anywhere I have ever worked

or even ever heard of in my career. The company executes on their mission like no other company I have ever witnessed and I am excited for the future of Binance. I thank CZ for giving me the opportunity to be part of such a dynamic and exciting company and for the support that he has given to me and the department. But alas, it's time for me to take some time for myself and my family, try and get healthier, lose the weight, start working on the honeydew list, start helping around the house, be more present for my kids, take a few naps when I can escape the wife. Sorry my choice to take some time off couldn't be more dramatic and entertaining. Now, on the one hand, this is a completely reasonable set of reasons to want to take some time away from this crazy, crazy

crypto industry. At the same time, I have to say, it was the one that struck people on Twitter as the strangest. The level of detail about the home life just really rub some people the wrong way, although obviously I don't want to really speculate around the veracity of anything Stephen happened to say. Now, Noel Perlman, the chief compliance officer, officer at Binance also publicly answered questions of whether he would be leaving the exchange tweeting, the answer is unequivocally no. I'm proud to be part of this incredible organization as we navigate the growing pains of the crypto industry. Now, CZ, as you would expect, weighed in, correcting the record that only one executive had resigned this week, presumably meaning

the other departures happened earlier and are now being reported. CZ wrote on Twitter, more thought about some departures. Yes, there is turnover at every company, but the reasons streamed up by the quote-unquote news are completely wrong. As an organization that has grown from 30 to 8,000 people in six years, from zero to the world's largest crypto exchange in less than five months from founding, and held on to that position ever since, we have been able to protect our users at all times, and we have been extremely lucky to have some of the best talent the planet has to offer. As markets and global environment for crypto changes, as our organization evolves, and as personal situations change, there is turnover at every company. We thank all of our

X team members for their contributions to our growth and wish them all the best. We also congratulate our team members who have grown into these new roles. They are all truly high caliber. We continue to build and continue to hire. So everyone in the crypto industry just took this at face value, right? And accepted the explanations of all the people involved? Yeah, not so much. First of all, people took note that this validated rumors from last week. On June 26th, Andrew at AP Abacus had written, sources claiming that Binance is having an all-hands emergency meeting this week in Dubai. Specific day and date not shared nor was the subject matter. SEC and CFTC actions obviously playing a role here, but more so, several countries

removing Binance in tandem. Adam Cochran tweeted yesterday, this is part of the emergency meeting in Dubai, based on the DOJ investigation senior execs in compliance and legal quit. Means one, DOJ investigation exists in filings forthcoming. Two, your lawyers and compliance officers only resign if you've really effed up. Chairman Burr-Bernacki followed up on that second part saying, or if they are now cooperating witnesses. Now, a lot of other folks in the crypto industry referenced other recent I'm Out posts.

Crypto Hippo said, Didn't FDX also have a bunch of senior staff leave before its collapse? A very smart move on their part as somehow Sam Tribuco has still not faced any criminal charges for his role in the Alameda FTX scam. Adam Cochran again quote tweeted Patrick Hillman's explanation saying, Doing it on good terms. Just like Cooley and Brooks did before Binance U.S. issues. just like Brett at FTXUS, just like Tribuco at Alameda. But when multiple global execs quit at once,

no amount of PR spin salvages that. Now, a lot of people were saying, look, who knows what's going on, but get your money off of the exchange. Alice Comfie wrote, I still believe the company is solvent and no meaningful commingling occurred. However, in light of the continued regulatory and compliance issues, I would encourage anybody with significant crypto exposure to plan for a post-finance world. I think the most likely outcome is a wind-up where everyone is paid in full, but that's not certain. Also risks of force KYC to try and fight back. Crypto-market-wide pricing is likely to get extremely unstable, especially for alt coins where almost all price discovery is centralized on Binance. In my opinion, the risk return for having a large amount of one's net worth in crypto has

long since 2021 turn negative. The situation is much more one of a growing house of cards than a developing ecosystem. Aerolitics tweeted, this is the first time I've taken Binance-related news seriously. Seeing senior figures leave, well, let's just say actions speak much louder than words. Not your keys, not your coins, better safe than sorry. Hal Press at North Rock L.P wrote, Binance is one of the risks I've been alluding to for months. Assuming this is true, it certainly looks like more smoke to me. As I've said before, would not have money on Binance right now. Risk is not worth it, in my opinion. Now, interestingly, all of this scariness didn't seem to be validated in the numbers. In fact, despite reports of chaos, inflows into

finance appear to be strong. Defy Lama is showing two billion worth of inflows into the exchange over the previous day. So where are we with this? Frankly, we're just waiting to see what happens next. This sort of reporting, particularly if there's panic within the inner circle, usually precedes something else happening. In many ways, we're down to two possibilities for another shoe to drop. Either one, the DOJ unseals charges and or makes an Interpol notice public, or two, Binance itself has some kind of catastrophic failure. Or three, things do turn out that just all of these folks were super burned out by a very chaotic last couple years and actually wanted to go leave to spend time with their families. Now, some have also been speculating about the connection between

all of this and BlackRock. Will Clemente took a screenshot of a tweet from Ensilico that said BlackRock master plan to get approval will end up insider knowledge that Binance is wrecked, as if it gets wrecked, then technically crypto is fit for spot ETF requirements. Biggest bottleneck now is Binance being a major exchange. Putting more meat on this bone, Dylan Leclair from Bitcoin magazine responded with ETF denial screenshots. What he was referring to is the fact that previous spot ETF denials have mentioned numerous issues with crypto exchanges involved in fraud and market manipulation. In addition, some specifically mentioned, quote, manipulative activity involving the purported stable coin tether. Because of this, some have suggested that a potential barrier

to or a prerequisite for BlackRock's ETF application being approved would be the end of finance and perhaps even also tether. Now, I don't know about all that. And I don't necessarily think that BlackRock has some super secret information about Binance being in trouble. But these are the tectonic plates I was referring to when I tweeted yesterday. I have no idea where things go from here. But what's for sure is that Binance, the biggest exchange in the entire crypto industry, is more on the ropes than it's ever been. I'm totally open to the possibility that a lot of senior executives are just tired of dealing with this space and with that company. But the timing doesn't seem great. And the sheer amount of that activity doesn't necessarily suggest that it's all coincidental. Now, one more little side story.

One of the more confounding mysteries surrounding Binance over the last few months has been the adoption of True USD, TUSD, as a major stable coin on the exchange. This followed the shutdown of Binance's white label stable coin BUSD when the exchange switched trading promotions to TUSD. This drove a 200% increase in market cap since March to around $3 billion for TUSD. Now, although it has always been denied, TUSD is rumored to be backed by Tron founder Justin Sun. There was apparently enough concern around these links to Sun for Avey to halt TUSD pools late last week on a community vote. Current chain analysis shows that Binance now holds almost 90% of circulating TUSD tokens on their exchange wallets. On closer inspection of Binance's wallets, Abdul from Say Labs noted that most

of this volume was lying dormant, having flowed into Binance wallets in mid-March when T-USD's market cap first experienced the dramatic increase. Now, beyond all of that, it's almost entirely speculative at this point, but it just shows how many dimensions of this Binance story there really are. Still, a day after these announcements, there's not really been any more information that's come out. AP Abacus summed up what a lot of people felt when he tweeted this morning. These post-resignation tweets from Binance executives are very, very strange. They sound almost coerced or forced in some way. Bizarre. I don't know what's going on, but I will agree that It's weird, and I guess we'll just have to keep watching to see what happens next.

Hell, it's Friday, and around noon as I'm recording this, maybe we'll get a crazy announcement in the next couple of hours. In any case, I hope you are headed towards a wonderful weekend. Until tomorrow, be safe and take care of each other. Peace.