Dialogue CZ: Will Binance be the savior of the Crypto market?

Source: WIRED

Compiled by: Katie Gu, Odaily Planet Daily

The crypto market is in free fall, losing about $2 trillion in just a few months. Bitcoin peaked at $67,000 in November 2021 and is currently hovering around $20,000. To make matters worse, many well-known projects have collapsed, possibly due to unreliable project designs and poor financial stability.

In May, Luna plummeted, evaporating $42 billion overnight, and although Terra had no cash reserves, it still guaranteed that the UST price would remain around $1. Two weeks ago, the crypto lending institution Celsius, which invested in the Terra-Luna project, halted all customer withdrawals due to a liquidity crisis; Singapore-based crypto hedge fund Three Arrows Capital also faced difficulties, potentially affecting a large number of customers and investors. As users rushed to exchange USDT for dollars, Tether's market cap decreased by about $15 billion in less than two months, equivalent to a bank run in the cryptocurrency space.

Amid the market crash, some companies are thriving. Take Binance, the world's largest cryptocurrency exchange, for example. While several crypto companies are laying off employees, Binance is aggressively hiring. Binance CEO Changpeng Zhao (CZ) still believes in the immense value of cryptocurrency.

In the "apocalyptic crisis" of the crypto world, CZ has to consider whether Binance will play the role of the last lender in cryptocurrency—like a central bank—to help fend off the threats facing the entire industry. Another exchange, FTX, has already begun taking action, "rescuing" the struggling BlockFi. Binance just needs to choose the next company to rescue to further strengthen its position in this turbulent industry.

This article is based on an exclusive interview with CZ by WIRED, edited and condensed.

WIRED: I want to hear your thoughts on the current crypto market. Is the crypto market facing a survival crisis?

CZ: When a market has hundreds of millions of people trading, it goes through cycles, and this is definitely not a survival crisis. Three years ago, Bitcoin was priced between $3,000 and $6,000, and if I had known Bitcoin would be worth $20,000, I would have been very happy—provided you were prepared in advance. But if you bought in 2021, you wouldn't be so happy.

WIRED: Do you think this undermines the idea that cryptocurrency can hedge against financial turmoil? Is cryptocurrency a safe haven? It's currently falling in sync with the stock market, which shouldn't be happening, right?

CZ: Cryptocurrency has a price and a value. These two things may differ. Therefore, when something is traded, the market usually experiences overbought and oversold conditions at highs and lows. Personally, I do believe the value of cryptocurrency is increasing. The number of use cases and the number of people using it, as well as its utility, are all increasing. However, the price is volatile.

WIRED: What is the main value of Bitcoin?

CZ: The biggest value of Bitcoin lies in its limited supply. This is because there is no central bank issuing Bitcoin, and the maximum number of Bitcoins is fixed at 21 million units. So it should be anti-inflationary. We are experiencing very serious inflation.

Now the price has dropped a bit. There are many factors affecting Bitcoin's price. Its supply is limited, and theoretically, it should be anti-inflationary, but that doesn't mean the price will always go up without going down. Those are two different things.

WIRED: If I invested $1,000 in Bitcoin in 2021, it might have dropped to $300 now. My emotions would be like a roller coaster. Inflation is rising, and Bitcoin's price is falling. I understand your reasoning, but if I were an average player, what advice would you give?

CZ: Prices fluctuate due to market psychology, but the fundamentals haven't changed. Just because something is anti-inflationary doesn't mean it won't drop. The price of any asset is determined by market psychology. Most people trading Bitcoin also trade stocks, so when the stock market drops, people run out of money and sell cryptocurrencies, causing prices to drop. But that doesn't change the fact that Bitcoin is still anti-inflationary. Bitcoin has no inflation, but the price can still drop.

WIRED: Yes, the stock market is not performing well. But the situation in the crypto market is worse, with the industry's value dropping by over 70%, $2 trillion gone. Some projects have failed miserably, like the demise of the stablecoin Terra. As an industry, is cryptocurrency behaving more recklessly than traditional finance? Is it a magnifying glass for the economy?

CZ: I don't think so. In any market, there will always be failures. Failure is a necessary condition for success. Google's achievements weren't reached in a day; there were many failed search engines before Google. That's the process of innovation. We learn from this cycle. Therefore, the crypto industry is still growing.

WIRED: Do you think the crypto industry allows failed projects to become central to the industry? When we talk about the crypto industry, what is it? How would you define it?

CZ: The beauty of decentralization is that no one can define it.

Binance invested in Terra, supported the project, and allowed Terra to trade on its exchange. Last month, Terra-Luna exposed the nature of its poor design. It collapsed in an instant, losing over $40 billion in a weekend.

I believe it is the industry that eliminates such projects. Users involved in these projects also followed and supported them, and many supported many failed projects. At the same time, the industry itself is also going through a "survival of the fittest," and the collapse of Terra-Luna will not destroy the crypto industry.

WIRED: Yes, but Terra-Luna may have gained a level of legitimacy that other failed projects did not. Why did it gain this legitimacy? Was it because exchanges allowed it to be listed? Or was it because there were large investors supporting Terra?

CZ: I don't know. We can also speculate that there may have been larger collapses than Terra that did not happen. And this collapse was somehow prevented by the crypto industry. So, could the entire industry have collectively prevented the collapse of Terra-Luna? It's possible. But we didn't do it. Perhaps we unknowingly prevented a larger collapse from happening, and that's possible.

WIRED: What measures did you take to prevent it?

CZ: I don't know. You never know what disasters you have avoided. If someone prevented 9/11, the planes wouldn't have crashed, and that person wouldn't know how big of a disaster they prevented.

WIRED: Did the collapse of Terra change Binance's criteria for listing tokens? What alarm bells did this ring for the industry?

CZ: I think we all learned lessons from such events. So we will now study lending protocols, research mechanisms, risk control, and so on more carefully.

WIRED: What would have happened if Terra had launched on Binance? If it hadn't launched on Binance and other exchanges, it might not have surged, and fewer people would have been affected by its crash.

CZ: It's a chicken-or-egg problem. When a token garners a lot of attention, exchanges have to list it.

WIRED: I checked the requirements for listing on Binance. It involves not only the number of users but also the quality of the team and the overall business model. Did you find any issues in your review process? The Terra project received a lot of criticism, even from podcasts like Bankless, which have consistently supported cryptocurrency.

CZ: Our team conducted a comprehensive review of the project, but there are always people who speak ill of projects, especially popular ones.

WIRED: In the current situation, the critics are indeed right, aren't they?

CZ: For all failed projects, all critics of those projects are right.

WIRED: Back to the Terra-Luna issue, what is the background check process for tokens listed on Binance now?

CZ: We use standard industry background checks. We will review relevant documents and require them to undergo background checks through background check services.

WIRED: Will you expand the scope of background checks for tokens listed on the exchange?

CZ: We will continue to improve. But similarly, I don't think we can guarantee that there will be no issues in the future. For example, no regulatory body can guarantee that Nasdaq has no failed products, projects, or companies. So this is not a black-and-white issue. But we can definitely learn from it. Currently, we are doing more analysis, especially when it comes to lending liquidity. But I don't think there is a perfect solution to avoid problems. As long as you have innovation, you should allow for failure.

WIRED: Binance is doing well now, while other exchanges are tightening their belts and laying off employees on a large scale, Binance is hiring.

CZ: Yes, we didn't spend a lot of money during the bull market. We have gone through a bear market, which is at least the second cycle for Binance. We know that Bitcoin's price can drop by 80% to 90%. So I always tell our team that we need to keep a cash reserve for 10 years; that's how we operate. In addition, we are continuing to grow. We are also very confident that the industry is still growing, and the number of users is still increasing. In two or three years, the price may catch up with the value again. But we want to be prepared for those who want to use our products.

WIRED: How do you see Binance emerging from this industry-wide crisis?

CZ: I think the most likely scenario is acquisitions, which will benefit us and anyone with cash reserves. Therefore, we will make more investments, acquisitions, and hiring. In the long run, this may not be a bad thing for us. But at the same time, I think the bear market is not the most important; people should actually focus more on building better products. In a bull market, everyone wants to raise funds, and everyone wants to do their own projects. There are many attractive things. We saw the bear market coming, and I think we should work hard to build our products. Then, when the next bull market comes, we will be ready.

WIRED: Do you think Binance and other large companies with substantial cash reserves have a responsibility to rescue projects that pose a survival threat to the entire crypto industry? If a collapse ten times worse than Terra were to happen, would Binance help it through?

CZ: I'm glad you mentioned this. I think there are three points. So far, the most important thing is that the project did not receive a large-scale bailout but remained stable. Terra-Luna evaporated $40 billion in a day, but the project is still there. Some other projects were also affected, but that was just a small part. Therefore, even without a "bailout," the project is still stable.

Regarding bailouts, there are two situations. Most of the companies that went bankrupt were poorly managed. They made some mistakes, or their designs were bad. Why should we bail out such projects?

Bailing out poorly managed projects is meaningless because these projects will continue to be poorly managed and will have bigger problems in the future. So theoretically, the bailout targets are those temporarily poorly managed companies. We can help them out of trouble and give them a chance to improve, and they will develop better.

WIRED: Would you extend a helping hand to those temporarily poorly managed companies?

CZ: Absolutely.

WIRED: Have there been projects reaching out to you for help?

CZ: We do receive requests for help from almost all projects currently under pressure, even those that may not be at immediate liquidation risk but might feel pressure.

We don't have a single "bailout" mechanism; we can acquire the entire product, lend them some money, invest, and take some equity. We can also buy some tokens to provide liquidity or acquire them; all of these are possible. But fundamentally, we will look at each project based on its merits. So whether to bail out is not a black-and-white issue.

WIRED: Would you rescue the cryptocurrency lending platform Celsius? It has been under pressure since it paused all user withdrawals, but perhaps it is a good project.

CZ: I don't want to comment specifically on Celsius. I think their team is having some discussions. We are negotiating with every project in the industry.

WIRED: Are you currently in communication with Celsius?

CZ: I'm not sure if we will have a conversation, but I think there is a good chance.

WIRED: Are there any projects keeping you up at night lately?

CZ: I usually sleep well.

WIRED: How is Tether doing now? After the collapse of Terra-Luna, there was a time when many thought it would be the next stablecoin to disappear. It's a $78 billion project. Now its managers complain that they are under attack from speculators.

CZ: I haven't thought about that. It doesn't keep me up at night.

WIRED: Would you extend a helping hand to rescue it?

CZ: It depends on how robust it is.

WIRED: Is Tether currently robust?

CZ: I'm not sure. I'm not questioning it; I just simply don't know. They haven't communicated with us. We don't know the information about the project, the team, and the operators; it's a black box for us. Therefore, when a project wants us to help them out of trouble, we need to conduct due diligence. If you ask me, "Would you bail out Tesla without doing due diligence?" I wouldn't know either.

WIRED: You gave Elon Musk $500 million to help him buy Twitter. How is the conversation with Musk about Twitter progressing?

CZ: I haven't talked to him much about Twitter. In fact, we are both very busy and don't have time for small talk.