Unchained - Listen to CZ Compare Binance to Bitcoin - Ep.173

Starting point is 00:00:01 Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. I know you're all excited to hear my interview with CZ, which was the kickoff fireside chat at Ethereum. And it was, as usual, a fun interview. However, before we begin, a couple notes. First, I'm doing another survey to find out what you want from the podcast and how I can make them better. Last year, we heard you loud and clear on the news front and so have begun including a weekly news recap at the end of every unconfirmed. This year, what would you like to see from Unchained? Please take a moment to fill out the survey to let us know what you'd like from the show. The link is in the show notes, or you can just go to SurveyMonkey.com slash R slash Unchained 2020. Again, that's surveymonkey.com slash R slash Unchained 2020. And guess what? Crypto.com has offered our survey respondents a chance to win a metal MCO visa card. And crypto.com will stake these cards indefinitely. Ten lucky winners will enjoy card benefits, including free Spotify, free Netflix, 3% back on all spending. And they'll earn extra interest

Starting point is 00:01:17 on their crypto deposit and more. Thanks, crypto.com. Again, take the survey now. SurveyMonkey.com slash Unchained 2020. One other thing, Unchained is hiring. I'm looking for a remote editorial assistant to start working later this summer as one of my staff is headed off to grad school. This role handles numerous editorial tasks from booking to proofreading to social media and deals with everything from the show itself to the show notes to the newsletter. If you love crypto and have journalism experience, get in touch. I have a link to the job posting in the show notes of this episode, and the listing is also available on my website. There you can find all the details on what you should send in and where. And now, here is my fireside chat with Z from the Ethereum conference. In response to the challenging times,

Starting point is 00:02:11 crypto.com is waiving the 3.5% credit card fee for all crypto purchases for the next three months. Download the crypto.com app today. The Stellar Network connects your business to the global financial infrastructure, whether you're looking to power a payment application or issue digital assets like stable coins or digital dollars. Stellar is easy to learn and fast to implement. Start your journey today at unchained. www.com. Cracken is the best exchange in the world for buying and selling digital assets. It has the tightest security, deep liquidity, and a great fee structure with no minimum or hidden fees. Whether you're looking for a simple Fiat on-ramp or futures trading, Cracken is the

Starting point is 00:02:57 place for you. Hey, Ceasy. How are you? It's nice to actually have an interaction face-to-face. Yes, I think last time we talked to us just over the phone. Yeah, we didn't get to see each other sort of visually. No, no, we didn't. So before we keep chatting, I just want to say to everyone, Welcome to the kickoff talk for Ethereum, which will be this fireside chat that I'm conducting with Chengpeng Xiao, aka CZ, who's the CEO of Binance. And if you don't know who I am, I am the host of a couple of crypto podcasts, unchained and unconfirmed. Welcome, CZ. Thank you for having me here. So in your tweet yesterday about our chat, you said that last time I interviewed you, I asked you tough,

Starting point is 00:03:48 bordering misleading questions. And I wondered what questions in particular did you take issue with? Well, you asked me if I was worried about going to jail. I mean, who asked that? Well, but I do think, I mean, my questions about U.S. regulations, I think at least, were on point because, you know, since the time of our interview, now Binance has changed its approach to the U.S. And I remember last time when I was asking you all about the U.S. regulations, you said that my line of questioning was like telling somebody who didn't like hot weather that they had to live in the U.S. or live in Florida. And you said, you know, that like that was ridiculous.

Starting point is 00:04:36 But apparently now you've decided that even though you don't like hot weather, you will come to Florida. So now you have finance U.S., which is specific to the U.S. market. And obviously it's unique regulations, I guess we could call them. And even within that, there's Binance USD, which is approved by the New York State Department of Financial Services, which is easily one of the toughest crypto regulators. So it seems that I was right that the way finance was operating was not really in line with U.S. regulation. Would you agree with that? And that's why you launched finance US? So again, I think I would have to disagree with.

Starting point is 00:05:18 the guideline of questioning, but I think the question is worded in a misleading way. It's just that, okay, because not every company starts in the U.S. and we didn't start in the U.S. We wasn't targeting the U.S. customers specifically, but we got to a big point where big enough, getting regulated in the U.S. is really expensive. I don't like, it's just like, I don't know, 48 states you have to get licenses with, I think our partner is still going through that process. It's very time-consuming. So, but at a certain size, we said, well, the U.S. market is an important market, and we want to be able to service our market. So we partner with spam trading services, and they are still, I, as far as I understand, they are still very much going through the licensing state-by-state process. So they're able to service, I believe, 37 states, and there's a few big states that are not able to service just yet.

Starting point is 00:06:10 So we're still waiting for them to get the license to go through that. But the narrative is not so much we were targeting the U.S. illegally before. and now we're doing it properly. It's not quite like that at least from my perspective. Okay. Okay. Well, I guess now I'm two for two and asking you border and misleading questions. But speaking of BUSD, which I mentioned earlier, that's part of Venus, which is your stable coin initiative. And, you know, that will create kind of many different types of stable coins for, you know, different fiat currencies. And in the Chinese version of your announcement, you referenced Libra when you talked about Venus and you, your co-founder, Ha Yi, I think is her name,

Starting point is 00:06:56 has said that Venus was, quote, the one-belt, one-road initiative or version of Libra. And so, you know, when you guys made this announcement, at that time, it looked like Libra was just going to be this single global currency. And Venus was going to take a different strategy of you know, being different stable coins of different central bank currencies. But now obviously, Libra is actually going in the direction that Venus was supposed to go. So is that changing your strategy with Venus? Okay. So I think there's some misinformation there as well.

Starting point is 00:07:31 Venus was never meant to be a stable coin on its own. It's a basket project encompassing several or many stable coins in different parts of the world. And our approach is always to work with local. governments, local corporations, or other regulatory bodies to issue different stable coins for different regions. We did not have the thought of using a basket-backed stable coin as a single stable coin. I haven't really figured out how the economics of that would work. So we took a very much simpler approach, say, look, US is a big market. And also we found a very strong partner there, Paxos, they're actually the issuer of the BinusD stablecoin. So even though it's called

Starting point is 00:08:17 BinusD, the issuer is actually not us. So it's issued by Paxos, which is fully regulated by NYDFS, one of the strictest regulators in the world. And their bank account is, I assume, is audited by the auditing firms. I actually don't see the bank account, but it is transparent. It is, it is, like, there's a piece of mind to it. So that's one part of it. And I think really, very recently, I heard that the government of Bermuda is even accepting BUSD for tax payments. So among a few other stable coins, that's also issued from the U.S. So that's quite good. We also issued BGBP.

Starting point is 00:08:56 We recently, so that's a British pound one. We also issued a BKRW, which is a Korean one one. So that's more in the work. So our approach to stable coin is that I think the simplest approach is basically, look, take some fiat, Put it in escrow, make sure it's totally transparent, audited, regulated, and then issue a stable coin on that. That's the simplest way. There are other more fancier ways, like algorithmic, I can't pronounce that word, those different types of stable coins, which are fancier. But that's fine.

Starting point is 00:09:30 So we just provide a very simple option for our users. And we want to do this in more and more regions through the Venice project, which is kind of an encompassing project. Right, right. But actually, so maybe you misunderstood my question because I was saying that now that Libra is essentially doing what you had planned to do, like, does that change that strategy at all? No, not necessarily. I think Libra's kind of, Libra's, well, based on common perception, they're very much focused in the U.S. They have a very strong presence in the U.S. It's a U.S. company, and they're dealing with U.S. regulators very heavily. And they do have a lot of reach globally in terms of using. So that's great. But I mean, our philosophy is always one more option doesn't hurt users. So we're going to throw wherever you make sense, we're going to provide our option. So we don't see ourselves as competition to Libra.

Starting point is 00:10:24 We don't see ourselves as competition to other stable coins. So we support other stable coin initiatives. We support, so we support anything that users want, really. So if a coin has a lot of users, we'll likely support it. And hopefully we will be able to, we will be able to provide usability to a lot of users with our own stable coin. If a lot of people use it, then it's great. If nobody uses it, then we're going to shut it down. So that's kind of our philosophy.

Starting point is 00:10:50 And China now is in the early stages of rolling out its central bank digital currency, DCEP. Does finance ever see itself launching a Chinese yuan stable coin as part of the Venus project? So right now, to be honest, we have no plans. And there's two versions of Chinese yuan. there's the onshore R&B, there's an offshore R&B, and they're not supposed to mix, because China do have a very strict flight capital controls. So right now, I don't think you can get a bank to support you to issue a stable coin in China. There has been attempts to issue a stable coin based on the overseas, the sort of overseas RMB, but very little adoption.

Starting point is 00:11:29 I think basically, today, U.S. dollar is still the dominant fiat currency, and we see that much of the volume is in U.S. dollar-based stable coins. So this is actually good. Like stable coins actually in this sense is very good for U.S. dollar. It's actually improves U.S. dollars dominance. But we'll see. Things may change. But basically, if there's a way to issue a stable coin properly with banking support,

Starting point is 00:11:57 with approvals, fully transparent auditing, if those things, then we are more than happy to do that. So we're talking with a few different initiatives. or different projects. But nothing is still early stages. Nothing's very concrete right now. And what impact thing DCEP will have generally on the adoption of crypto? To be honest, based on my limited understanding right now,

Starting point is 00:12:20 it feels very much like a digital version of R&B, which probably plus a blockchain architecture somewhere in there. So it's still very much controlled. access to it is still very much limited to a number of large banks. So how easy it is for a sort of a crypto player to integrate that into the ecosystem, I'm not sure. So so far, we do not have access to it. So they're testing, my understanding is they're testing it among a few big banks initially.

Starting point is 00:12:55 So hopefully, if it gets really wide adoption, if everyone in China is using it, And if there's a blockchain interface that we can interface directly onto Binance and let people deposit and withdraw, that would be great. If we can't do that, then the usage will be somewhat limited. It's still useful in the sense of educating everybody about blockchain and stable coins, cryptocurrencies, et cetera. And I think today, if you learn about blockchain and cryptocurrencies, you cannot not learn about Bitcoin. So I think that exposure helps a lot, even if we can't use it. So it's still early stages. We can't use it today because it's still being very limited testing.

Starting point is 00:13:33 But hopefully very soon we will be able to use it. And if we can, then that'll be fantastic. That provides a much better on-ramp for R&B. We'll have to see. Yeah. And another thing that I find interesting that's happening right now, as we're seeing this race amongst these central bank digital currencies taking place, is that obviously at the same time we have this pandemic.

Starting point is 00:13:56 So I was curious to know what impact do you think the coronavirus and the economic fallout from that will have on the adoption of crypto. And also I wondered if you're already noticing any trends in terms of the activity on Binance. Sure, absolutely. So I think there's definitely a lot of trends that we're already noticing. The most obvious one on Binance right now is there's higher trading volumes. They're far higher trading volumes ever since like a couple of months, like about two months ago. So there could be a variety of different reasons contributing to that. It could be that people are just abroad at home and they just trade more because there's less other distractions or other interesting things for them to do.

Starting point is 00:14:36 It's also possible that given that the government is printing money at record speed to sort of support the economy or to try to recover the economy. And now those money is starting to flow into cryptocurrencies and we've seen the price. is recovering. But all of those things, I think, have a very fundamental impact. And also the coronavirus has a huge impact in the sense that traditional industries are very much stopped, right? So production in, like, basically we can print a lot of money to sort of hand out money to everybody.

Starting point is 00:15:11 But the fundamental fact is production, like in a lot of sectors, have completely stopped. There's a few essential sectors that are still going strong. And online virtual businesses are going strong, which is good for us. us as well. But then with the government printing so much money right now and everyone being bought at home, so all of those factors contribute to the growth. So yeah, I mean, so far, I think as many KOLs or like OGs say in the space, we're kind of witnessing a perfect storm for Bitcoin and cryptocurrencies. So I think if cryptocurrency does not shine in this environment, then I'm in the wrong industry.

Starting point is 00:15:52 So I'm pretty, but I'm very confident about it. During this time, you also became the number one crypto futures trading venue. Why do you think that shift happened? To be honest, I think we got lucky there. So I think when we, the futures platform actually have grown very quickly as well. Again, I thought it would take multiple years to grow to the number one platform for futures. because we only started in late September last year, so really only just over half a year.

Starting point is 00:16:25 And they were existing established players with very large volumes, and we thought it was going to take a while. We deliberately engineered the product to be a little bit different, even though it's still features, yes, we copied a lot of other features, other people's features, but the fee structure is very different. Our fees are about one-seventh of the existing players for a fees that they charge for the taker side. So we have very aggressive takers for the, so we are very attractive to the sort of smaller

Starting point is 00:16:53 retail guys. We don't have a high maker rebate. So it was deliberately engineered to be slightly different from the existing platforms. And we were growing slowly. And to be honest, on March 12th, the biggest futures exchange experience on issues. And that's the day when the Bix Point price was moving really, really widely. the Bitcoin price was dropping and everyone wants to trade. Luckily, our system stayed up.

Starting point is 00:17:20 And so that moved a lot of liquidity to us. And actually, unbeknown to most retail people, a bonus futures has the fastest API and most stable API. So we average somewhere around 5 to 7 milliseconds, which is about somewhere between like one-third to one-tenth of the latency or other platforms. So those kind of things over time they kick in. But honestly, we didn't expect it to be that quick.

Starting point is 00:17:44 And we still offer a very limited product in terms of futures. We only have the perpetual futures. So we're actually looking to add settlement futures. Our futures is settled in a USD or BUSD stable coin. And we were looking to provide a cryptocurrency stable, sorry, cryptocurrency-settled futures contracts. So all of those things are going on. But I think we got lucky on the futures growth. I would say that somehow your career in crypto seems to have been born under a lucky star.

Starting point is 00:18:21 One other thing I wanted to ask about was just like, so what you're seeing kind of initially now in these early months after the coronavirus pandemic, would you, do you think that you're, you know, that you have a sense of how long term this will affect the adoption of crypto or how you'll see crypto? trading or who gets involved in crypto, how all those things will change? Yes, I think my feeling, I could be very wrong on this, just my personal opinion, is the impact is going to be on the level of month. So I think we're going to see, I think it took a couple of months for the impact to kick in. So you didn't kick in like on the second day when we felt there was a financial crisis. When the stock market crashed, Bitcoin actually crashed with it. So you actually didn't have that sort of a safe heavy effect on a day-to-day basis.

Starting point is 00:19:17 But I think we're seeing that there's a strong recovery right now. And so it's been a couple months. And I think over the next few months, maybe six months, 12-month, 18-month-ish, we're going to see very, very significant impact. I think more and more people are going to realize, okay, well, there's just unlimited cash flowing around. And the minute they get the cash, they will want to put that into something that's of limited supply. And the easiest thing to put that into is actually cryptocurrencies.

Starting point is 00:19:46 So before, 10 years ago, that option wasn't available. But now this option is available. People can buy gold, but other than a few, like really old-timers, nobody really wants to buy gold anymore. So I think, and also there's more and more, people are becoming more and more aware of the different economic impacts of different actions government take. So I think over the next,

Starting point is 00:20:11 12 to 18 months, we're going to see some really significant changes in the crypto space. And right now, we're in a situation where there's a, like, there's a halving going on, right? So it's a perfect storm. So after the halving, the supply of Bitcoin is actually going to be decreased, or the new supply of Bitcoin is going to be decreased by half again. So the supply is very, very limited, and people will just have to,

Starting point is 00:20:36 I think, and more and more people come in. And like the data we see on our platforms right now in terms of new, users and also as well as old users whose account has been dormant, has been, like, they're really coming back alive really quickly. So our customer support has been really busy as helping people with the password resets, et cetera, because there's a lot of guys who like just forget their password after a while, right? So we see all of those things happening.

Starting point is 00:21:01 So I think in the next to 12 to 18 months, we're going to see some really significant increase in adoption in the crypto space. Yeah, yeah. We'll see what happens. It's true that historically that has been the case after having. So let's switch from talking about Bitcoin to Ethereum. Your proposed Binance SmartChane, which is a smart contract platform, will be compatible with Ethereum. But what do you say to the people who think that Binance Smart Chain is attempting to compete with Ethereum? Well, I think basically that depends on the definition of competing,

Starting point is 00:21:35 because it's really a very personal, subjective view for a very personal, for each individual. So I mean, you can say Ethereum's competing with Bitcoin. I'm not sure if that's, or you can also say B&B is competing with Bitcoin. At a broader level, maybe, you can also say we're kind of complementing each other. So we, so initially when Binance Chan first started,

Starting point is 00:21:58 our goal was to just provide a platform, a very fast chain that solves a scale performance issue with many of the existing blockchains and so that we can run a decentralized exchange on it. And so, So that goal has been achieved. But given the popularity of centralized exchanges and the ease of use for centralized exchanges, I think most people still don't know how to hold their coin themselves, to be honest.

Starting point is 00:22:22 Like if you grab 100 guys on the street, only 99 of them will now know, or at least are not confident holding a Bitcoin on their own. So until that changes, and we're looking, and I think the decentralized exchanges will be relatively small, but you could change very quickly. We don't know. One of the most requested features for Binance chain was a smart contract. And everyone wants a EVM Ethereum virtual machine compatible smart contract chain. So we said, well, if users want it, let's provide it.

Starting point is 00:22:54 So we view ourselves as complementary to Ethereum, not competing. I think Ethereum does a lot of things very well. Ethereum is first, Ethereum did fulfill their vision in the sense that they did build a unstoppable machine. It is, well, the 1.0 version is still a little bit, like they have performance bottlenecks, which everyone's experiencing. So hopefully 2.0 will solve that. But from our perspective, look, if something's already working and there's a very large

Starting point is 00:23:21 community, it's already familiar with solidity programming, then we should just go along with it instead of fight it. So we view ourselves, we never really view ourselves as competing with Ethereum. We support Ethereum. We listed on Bynos.com. We have a very large number of pairing for it. So I think we support the initiatives that they're pushing forward. And I think some of the technical problems they're trying to solve are very meaningful.

Starting point is 00:23:49 If the Ethereum 2.0 solve the performance scalability problems using sharding, that's super useful. So we hope they do well. And so if I'm a developer or user, why would I either create or choose to use an Ethereum app on the Binance smart chain as opposed to on Ethereum? Well, number one, on the Binus chain, if you issue a token on the Binus chain and use the smart contract there, you can just port over your Ethereum contract. You will work on both chains. And then when you have it on your Binet chain, there's a Binus decentralized exchange,

Starting point is 00:24:25 the Binus Dex that works out of the gate. I think the decks on Binase chains is very well done. It has a very, to the extent possible, a very user-friendly, interface and a very fast matching engine and it just works and then you're also in the in the binus ecosystem you can be honest most developers you can be in both ecosystems uh there are a lot of coins which which are dual chain or multi-chern right now so that's just another option and then if you're on binus decks and if your trading volumes high enough we we get a higher slightly higher chance of listing on binus.com so you're kind of more visible to the binus ecosystem we the binus echo the

Starting point is 00:25:06 Ethereum ecosystem has a very high number of users. The Binance ecosystem also has a large number of users. And they're two slightly different user groups, to be honest. The Binance ecosystem has more heavier traders and centralized exchange users, whereas the Ethereum ecosystem has more developers and more sort of the tech-heavy, pure decentralization type of guise. So it's slightly two different, even though we're kind of within the same industry, there's some differentiations between the different players.

Starting point is 00:25:36 So it's just another choice that we provide for developers and users. So it sounds like if there's more traders in the Binance ecosystem, then maybe it would make sense for some of the defy projects to want to move over there or to create. Okay. Okay. So I wonder if there will be Ethereum people who will say, you're stealing our defy users and developers.

Starting point is 00:26:05 What would you say to them? So to be honest, I think there's always two sides we can view anybody else on this planet. We can always view them as a collaborator or we can view them as a competitor for any person on this planet because they're breathing my air. So I think basically we are the fundamental situation in this industry is that the market is not nowhere near saturated. So only one in one thousand people have some kind of crypto right now. So only 0.1% of the population have crypto. There's 99.9% of the expansion that can be possible. In a saturated market, if you introduce a new player, yes, you're going to take market share from other players.

Starting point is 00:26:48 In a nascent market, one more player come in will make the ecosystem bigger. That's much better for the ecosystem. So we would want to invite Libra to come in. We would want to invite IBM, Microsoft, other guys, Google, to come in. So I think having more players in a small and not saturated market, nowhere near saturated market makes this industry bigger. So now we should be all collaborating to make this industry bigger. Once you achieve, like say, look, if you want to do another, I don't know,

Starting point is 00:27:20 search engine, you're probably competing with somebody else. If you do another browser, you're probably competing with somebody else. But if you're doing another blockchain or another blockchain application or even another exchange, chances are you're not competing directly with us. There are so many users who are not using Binance right now. So only 0.1% of the population are in crypto, only a small portion that are using Binance. So if you launch an exchange in somewhere else, you can get more users into this industry that helps all of us.

Starting point is 00:27:50 So there's two ways to view it. I think that's really depending on a person who likes to view. That depends on their worldview. We don't view anybody as competition right now. So we just want to grow the space bigger. Yeah, that reminds me. I asked a similar question to one says Casares a year ago. And he mentioned, he was talking about a different industry that he had launched a startup in, but he basically said what you're saying, that competition just grows the pie.

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Starting point is 00:30:49 which was that Binance recently acquired coin market cap. And because Binance is an exchange and is also at least one of the, the largest holders of VNB, if not the largest. Some people say that Binance could have an incentive to sway the rankings and the reported volume on coin market cap. So what do you say to people who are concerned about that? Well, I think, so if we do that, then if we do that in a negative way, just for the benefit of finance, then coin market cap loses a lot of the value that it provides. So I think neutrality is a very key value for coin market cap. And I recognize very well myself. And the coin market cap team recognized that.

Starting point is 00:31:29 And did we ask the coin market cap to fix some of the fake volumes on coin market cap? Yes, we did. And I think all the community agrees that there's a lot of exchanges reporting fake volumes there. Well, we have our influence in that discussion, I think also yes. But coin market, all the business units, what I call business units. So ivybynast.com, the exchange is one business unit. CMC is one business unit. Trust wallet is another business unit.

Starting point is 00:31:56 We have like, I don't know, 30, 50 different business units. Each business unit operates relatively independently. And so if Binet wants to put an ad on CMC, they will pay for it. So the Binus.com exchange business will pay the CMC business for that ad, and they will pay market rates. They'll get the lower tier of the market rate, so they will not be ripped off because for us is really left pocket, right pocket. But I think from my perspective, for the best thing to maintain,

Starting point is 00:32:26 value overall for CMC and Binus.com together is CMC being the CMC and Binus.com, the exchange being the exchange. I think both are strong enough to compete on their own. We don't need to sabotage one business for the benefit of another business. Binus.com can compete. It's already the number one exchange by most metrics, by most matrices. And CMC is the largest traffic website because it's useful to a lot of users. And also Binance.com will not unnecessarily benefit, give some benefit to CMC, just to move CMC up. So I think both businesses will compete independently and they should build value independently. And that does not involve CMC directing all the traffic to Binus.com.

Starting point is 00:33:06 So people don't have to worry too much about that. And you did reference, obviously, the fake volumes or at least the inaccurate figures on Coin Market Cap. What can you do or what can Coin Market Cap do to make the numbers, accurate? So what I did was basically I posted the Twitter, I posted a tweet and asking for feedback and that was probably the number one feedback that people want to fix. So I just asked the team, just fix it somehow. I don't care how you guys fix it. The team has what they call a liquidity metrics. So they look at the order book depths, they look at a bunch of other matrices to try to fix it. And after that, so I mostly use coin market cap for the work for the coin market cap. So when I look,

Starting point is 00:33:48 When I look at a specific coin, I look at that. I did use the coin market cap for exchange rankings, but it's so inaccurate right now. It's kind of less useful. And then I look at the adjusted volumes that they had. I was like, well, that's even less accurate than the reported volume. So I did give those feedback. But other than that, I didn't tell them how to fix it. So I said, look, there's a bunch of metrics you can use.

Starting point is 00:34:12 You can tie it together with web visits or you can tie it together. They also have data on outbound clicks. many people click on the links for each exchanges to go to the exchanges and Binus is number one, even though Binus is mostly ranked like a 15 or 20 or 25th spot because there's a bunch of other guys with fake volumes in front of that. So we look at those data, we look at those data, even historically, Bin Laden's number one. And actually, if you look at the outbound data, it's actually very accurate. That gives it like a very accurate. So they have a lot of data that they can use to sort of fix the ranking. I didn't, I didn't ask, I didn't tell them

Starting point is 00:34:48 specifically how to fix it. But just say, look, that's the number one user requested feature. You guys fix it. Yeah, well, we'll see how that goes. Good luck to you guys on that. One other thing I wanted to ask about was, you know, you guys launched this leverage trading in October, and you did it with 125x leverage. When high leverage can so easily cause many traders to get wiped out, why did you offer such high leverage? Okay, so I'll make a confession. The high leverage is more of a PR gimmick. So the 125x is only available for small amounts. So if you want to trade like, I don't know, a couple hundred bucks, yes, you can go $125X.

Starting point is 00:35:30 And at larger amounts, if you want to trade $10 million, no, you don't get $125.6 leverage. Because if you get liquidated, the current liquidity is not in the industry is not strong enough to support that kind of liquidation. So it's a tiered system where for smaller amounts, you get that, you get, you get to that kind of leverage. And we have a deleveraging system that if you approach your margin and then you get leveraged, most of people actually only use like 10, 20 max. Like most people don't really use above 30, 50x. So the high leverage is really sort of just, well, there was 100x and there was 101x.

Starting point is 00:36:12 We said, well, 1001 doesn't really divide very well. 125 divides much better. If you're divided by eight, you get a nice number. If you divide by seven, you get a nice number. So we just said, well, let's go with that. So most people don't use that high leverage. Okay, okay. Well, we got a nice admission there.

Starting point is 00:36:31 So this is going to be something else that a lot of people are going to be curious about. In early April, 11 class action lawsuits were filed against a number of crypto companies and token projects. And Binance was one of them. The suit named you and your co-founders, Hewini, and Roger Wang as defendants, the lawsuit noted that in 2019, finance averaged more than $2.8 billion in daily trading volume, had more than 15 million users worldwide and listed 184 tokens. And it also talked about how in 2018, finance brought in $446 million in profit.

Starting point is 00:37:07 And then the lawsuit said, quote, how did a company that was barely a year old generate such extraordinary profits by building a platform that solicited the buying and selling of unretchencered securities on a historically unprecedented scale. What is your response to that? So on that point, our lawyers told me not to say anything. So I would not comment on that. But we have lawyers handling it.

Starting point is 00:37:31 So it is what it is. I think every company, well, we were not without losses from the very beginning. We had Sequoia suing us at one point. So that's resolved. Again, I cannot comment on that out. outcome on the details, but that's completely resolved, no issues anymore. So we'll just have lawyers handle it. One of the tricky things in this world is that in the world I was brought up in, at least the values I was taught, you're innocent until proven guilty. Having somebody suing you

Starting point is 00:37:59 is a standard, well, not a standard, is a normal part of a business process. But today, many people think that as soon as there's a lawsuit, you're guilty, which is not the right, I don't think that's the right perception. So we'll let the lawyers figure it out. Unfortunately, in this kind of situations, all the lawyers tell you to not comment on it. So I can't comment on the specifics. But we'll see. Yeah, I think what's interesting is that this sort of goes back to our first interview where I was asking you these questions. But yeah, we'll see how this plays out because I think this was a, these were things that a lot of people were wondering about.

Starting point is 00:38:35 And now we'll finally get our answer. So another kind of controversial issue recently was that, you know, obviously, so we're seeing now that more and more blockchains are using delegated proof of stake. And because of that, some people are concerned about the power that exchanges might have in those systems because of the coins that they hold for their users. And a good example is what happened with the Steam blockchain when Binance initially helped the Steam tokens on the exchange, or use the tokens on the exchange to help Justin's son as you took control of Steam. And then Binance later reversed course and helped a fork of steam called Hive to basically remove some of the control that Justin Sunhead. So why did Binance change directions with Steam and how do you think exchanges should handle the power that they have in these delegated proof of stake systems with the coins they have? Yeah. So to be very frank, and I said this openly a few times already, which is we didn't know it was like a contentious fork. So we go through many wallet upgrades, right?

Starting point is 00:39:37 So blockchain upgrades. Whenever there's a blockchain upgrade, it's very often a soft or even a hard fork. And typically the developers, the core developers will contact us, say, look, there's a hard fork coming. You guys need to upgrade your wallet and support it. We just follow the instructions, really. So they give us a detailed level of instructions. We look at it. We just follow it.

Starting point is 00:40:01 And so when this was the steam soft or the fork was presented to me. me as a upgrade. And I was asked, just like, well, yeah, let's go for it. So I didn't even I did. I did approve it. My team. Who asked you? So we have my own team talk. And actually, I didn't talk to Justin before this. So my, their team was talking to our team on the wallet upgrade. And my team asked me, hey, it was a standard like rubber stamp process where they say, oh, look, there's a wallet upgrade. We got to, are we going to support it or not? I'm like, yes. So that was the extent. Afterwards, the Steam community went ballistic.

Starting point is 00:40:42 And I was like, oh, okay, well, that's not very good. So I made a mistake of not realizing that, which I fully admit and take responsibility for. And we do not want to get involved in governance, blockchain governance, weighing our opinions, et cetera, especially we don't want to use our users' coins to do that. So if we want to weigh in, then the only way we would do that is to make a vote feature on Binness.com so that the guys, we have awaited a vote according to their balances, and then we use that to vote. But we don't even have that feature today because we don't really want to get into that.

Starting point is 00:41:18 And so after the fact, and Steam works in a very strict way. Once you vote, like what they call power up, which I learned afterwards, then when you power down, it takes 13 weeks to unlock. I think we're still probably in that process, or maybe we're probably near the end of that process. And so as soon as we discovered, we reversed course. We said, look, this is not something we want to get involved with. We did what the community asked.

Starting point is 00:41:46 The community still have some resentment on the actions that we took. They think we caused the fork. But the fundamental fact is after we reverse the actions, Justin's probably has a lot of financial, what you call it, ability to influence that anyway. I didn't look at the data, but for a while, the steam coin price was going up because both sides were trying to buy more steam to vote. So we've seen that happening. I didn't really look into the details of that.

Starting point is 00:42:12 But from our perspective, our principles are very simple. If it's not a contentious fork, if it's a regular upgrade, we definitely support it. We support the blockchain ecosystem to grow. So we have a standard process. Now we added a check to see if there's a contentious hard fork. But normally, we would just support an upgrade. But we are principles, we do not get involved in other people's blockchain governance. That's for their community.

Starting point is 00:42:36 That's for whoever holds those coins. So we want to stay neutral in terms of other blockchains governance. We're not interested in that. So one of the interesting thing is right now there is somewhere, I would say, for any coins, between like 10 to 30 percent of coins on exchange on finance specifically. So for any delegated proof of stake consensus mechanisms, they have to design with this in mind. So ideally, you design in such a way that it's either easy for people to withdraw coins from the exchange vote and not have those coins locked for 13 weeks before they can redeposit in trade or have a way for exchanges to be able to vote on the user's behalf.

Starting point is 00:43:22 So we will never vote on our behalf using the user's coins. So there are those kind of questions which are being considered. And someday we may want to support it. But it does raise the question of some of the blockchain designs where when they design it, some of them have very simplistic designs where they just assume everyone holds their coins in their own wallet and they never trade. They just buy it and spend it. But the world is not that kind of, it's not that naive.

Starting point is 00:43:53 So we just have to take that into. I just hope that other designers of blockchains take that into consideration. But our principles are very clear, very simple. In November, the block reported that finance had two Shanghai offices that closed after being visited by local authorities. And then in February, after some media outlets described finance as being multi-based, the Malta Financial Services Authority issued a statement saying that you were not authorized by the MFSA to operate in the cryptocurrency sphere there.

Starting point is 00:44:22 So where is finance headquartered? Well, I think, well, this is the beauty of the blockchain, right? So you don't have to, like, where's the Bitcoin office? Bitcoin doesn't have the office. So we have people around 50 places in the world. And actually, just to make the record correct, just to set the record, the block articles saying that we had a police rate that did not exist, police rate on a finance office. So that was pure fake.

Starting point is 00:44:52 And within 12 hours of that post, the B&B market cap, dropped from $2.6 billion to $2.2.2. So they actually had a, that fake article actually had a very material impact on the B&B holders. So they actually really wiped up $400 million. But just to clarify, I mean, so the block did admit that police raid maybe wasn't the term, but to, you know, to say that you guys were visited by local authorities checked out, in their opinion. Are you going to dispute that? I don't even know. So I think the story carries a very much different weight if you say, well, a government official visited Coinbase versus the police rated Coinbase. I think those two things are very, very different. So you kind of really are.

Starting point is 00:45:35 But just, but to say that the office closed after the visit from local authorities, are you going to dispute that? So yes, I am. So again, so again, so basically, again, also at that same time, there was a Chinese CCTV visit of an office in Shanghai, where, they reported it was a customer support office. So it's not, it's not, it's not, it's a, it's a outsource customer support office. It's not even Binance office. So again, so yes, I openly disputed that. So I think people have all this traditional mentalities they have.

Starting point is 00:46:14 They try to classify what kind of horse is a car. So you have to have an office. Wherever I sit, it's going to be the minus office. Wherever I meet somebody is going to be in a finance office. And you have to have an entity, you have to have an headquarters, you have to have a bank account. All of those things doesn't have to exist for blockchain companies. Well, I mean, just, but even to do things like to handle, you know, taxes for your employees, like, I think you need a registered business entity.

Starting point is 00:46:42 So, like, why are you obfuscating it? Why not just be open about it? Like, you know, the headquarters is registered in this place. Why not just say that? Well, we don't, we don't, so we, we don't. So we don't really, we just not, it's the same thing as why, why don't you admit you're some kind of horse. We're not a horse for a car. So it's not that we don't want to admit it.

Starting point is 00:47:06 It's not that we don't want to, we want to officicate it or we want to try to hide. I'm not hiding. We're in the open. I'm on Twitter every day. I go to conference, I go to fiscal conferences. So we're not hiding. But it's just like, why don't you go back to this old way of being? I mean, we're not that.

Starting point is 00:47:23 I mean, what are you saying? That you're already some kind of Dow? Or, I mean, what are you saying? Because it's not the old way. It is actually the current way. And until you can say, like, we're officially a Dow, like, I actually don't know, you know, what you are or what you're claiming to be. So, well, let me put it this way. So I don't think we're a Dow in most of the definitions of a Dow.

Starting point is 00:47:47 I think, again, I think that's kind of a binary definition. You're either traditional company or you're a Dow. I think we're just a teamworking to. together really well and we build a platform that works and we have multiple we have multiple places we work most of one now most of it was actually we mostly work from home even before the coronavirus quarantine we're working 50 different countries now we have a we have a large team that works together to a common goal it's just a new type of organization I wouldn't classify to be honest if we classify

Starting point is 00:48:19 as a doubt there's going to be a lot of debates why we're not a doubt so I don't want to go there either. Yeah, I mean, nobody would call you guys to dial. And can I ask where you are right now, where you're doing stay at home? Yeah, I'm in Asia. So it's 7 p.m. here. So it's 7 p.m. here. So it's 7 a.m. where in Asia? I prefer not to disclose that. I think that's my own privacy. All right. Well, that's going to have to be where we're going to end because it's now 8 a.m. And that's it. Thank you so much, Z. for making this fireside chat happen, especially last minute. And I hope everybody enjoys the rest of ethereal. And did you want to say any last word? Yeah. Sure. Thank you, Laura. And I always appreciate the tough questions. Actually,

Starting point is 00:49:02 makes an interesting conversation. Cheers. Yeah, I appreciate that you are willing to take my tough questions. I hope we can make this happen again. That's fun. It's fun. All right. All right. See you later, Laura. Thanks for tuning in. To learn more about CZ and finance, be sure to check out the links in the show notes of your podcast player. Don't forget to take the Unchained SurveyCurvey.com slash R slash Unchained 2020 to have your say and how we can improve the show. Again, you can have a chance to win a metal MCO visa card that Crypto.com will stake indefinitely. And that offers free Spotify, free Netflix, and 3% back on all spending, plus extra interest on your crypto deposit. For your chance to win, fill out the survey at Surveymonkey.com

Starting point is 00:49:50 R slash Unchained 2020. Unchained is produced by me, Laura Shin, with help from fractional recording, Anthony Youne, Daniel Ness, Josh Durham, and the team at CLK transcription. Thanks for listening.

Unchained - Listen to CZ Compare Binance to Bitcoin - Ep.173

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