Wang Feng in conversation with He Yi: How to face the predicament of Web3 today?

整理：MarsBit

On January 10, the "POWER Hong Kong Web3 Innovators Summit," hosted by MarsBit and co-organized by Hong Kong's Cyberport and G-Rocket International Accelerator, took place in Hong Kong.

At the conference, MarsBit founder and core founding team member of Element, Wang Feng, connected via video with He Yi, co-founder & CMO of Binance and head of Binance Labs, to discuss Binance's recent developments and market investment topics.

Wang Feng : Binance has always been the most notable company in the crypto industry. In the past year of 2022, Binance had two major events that attracted widespread attention in the industry.

First, Binance founder He Yi began to lead Binance Labs, directly managing a $7.5 billion venture capital fund, which was news I saw last summer. Previously, there were constant rumors about internal personnel changes at Binance, and for a while, we outside observers couldn't understand the revolving door of personnel adjustments at Binance.

Second, at the end of the year, Binance and FTX had a fierce battle, with FTX suffering a complete defeat, leading to a bloodbath in the market, culminating in the criminal prosecution of founder SBF. However, this immediately sparked discussions about whether cryptocurrency exchanges need stricter regulations and solutions for transparency, a debate that continues to this day.

So, in our conversation today, we will discuss Binance on one hand and investments on the other. Thank you, He Yi, for participating in the POWER Web3 Innovators Hong Kong Summit and joining me for this dialogue.

In one sentence, what is the most pressing matter for you right now?

He Yi : Currently, the most concerning issue for the Binance management team is how to build a "sustainable" system, which involves addressing two problems: business health and organizational health. If the business is healthy, even in the face of fierce disputes, the platform will not collapse; secondly, organizational health is crucial. Currently, the Binance team includes 8,000 people, and we need to coordinate to ensure everyone understands the corporate culture and that behaviors and goals are aligned. Regardless of who the CEO or COO is, Binance should be able to operate smoothly.

Wang Feng : You are simultaneously overseeing marketing at the world's largest cryptocurrency exchange, where you hold at least two-thirds of the market share, while also managing a multi-billion dollar venture capital fund. Both aspects involve managing money, people, and affairs, and doing either well is not easy.

From my perspective, the former focuses on being at the forefront of battles; the external environment of the cryptocurrency trading platform and the internal market are filled with uncertainties and risks. It requires studying users as well as market competitors (enemies); the latter often looks further ahead. Venture capitalists look through telescopes to see trends and opportunities, studying entrepreneurs. Moreover, investment opportunities in the crypto market mainly lie in underlying technology architecture and the next application fields, which require more time to study technological trends. So, how do you balance your time?

He Yi: It's quite common to have 16 or 17 meetings in a day. I care more about spending time on problem-solving and understanding user needs in the community. As responsibilities grow, not everything needs to be handled personally; we hope to adhere to the principle of "professionals doing professional things."

The Binance team has been expanding in two main directions: one is recruiting top talent globally to find suitable candidates for the management team; the second is seeking young people with potential who align with Binance's values. The basic requirement is to assess whether the individual is honest, followed by their abilities, enthusiasm, and way of thinking. Only by building a complete management team can we ensure organizational health and long-term development.

Wang Feng : Is the time spent on market and Labs work evenly split, or is one side more important?**

He Yi: These two parts only occupy one-sixth of my time because if the team is professional enough and makes the right decisions, I don't need to spend too much time on it. I will spend more time nurturing young talent.

Wang Feng : Regarding your division of labor with Zhao Changpeng, what matters do you not touch? What matters does he not touch? Are there any very important matters that neither of you touches?**

He Yi: The matters CZ and I focus on are essentially the same. They are the two major directions I just mentioned: first, organizational health, and second, business health. As the scale increases, the number of businesses grows, and with more businesses, coordination within the organization becomes necessary. Since he is the CEO, he certainly deals with more matters and people.

Wang Feng : The crypto market faced significant challenges in 2022. From the perspective of market participants and individual investors, it was hard to imagine so many exchanges/institutions collapsing. Did you foresee the market downturn, or do you think there were already signs?**

He Yi: Not at all. Sometimes people feel like we are lone wolves, mainly because Binance often views itself as its own competitor, continuously competing against itself. In fact, every industry has cycles, just like the development of the internet industry, which goes through bursts, bubbles, troughs, and recoveries. Binance mainly hopes to find the right direction in the industry and help more ordinary people.

Wang Feng : Before FTX completely collapsed, did you ever anticipate its outcome?**

He Yi: I didn't expect FTX to be so reckless. Initially, we saw an article from Coindesk, which presented information that was highly unfavorable to FTX, but I really didn't expect them to misappropriate user assets. At that time, I recalled a friend mentioning the sudden departure of a very nice CEO from FTX US, which I thought was not a good sign. Due to the transparency of the blockchain, we started organizing assets, and people on Twitter began asking, "What is Binance going to do?" At that time, CZ felt there was a need for a warning, so without much thought, he posted that tweet.

Wang Feng : I think Binance is a conservative company.**

He Yi: Binance has a strong risk control awareness. Although regulations vary by region, we have always been self-regulating. For instance, Binance team members are not allowed to trade cryptocurrencies; after purchasing assets, they must hold them for 90 days before selling.

Binance's internal audit is very strict, from top to bottom, and regardless of rank, the requirements for employees are consistent.

Wang Feng : "Too big to fail" seems non-existent in the crypto market. For those coming from the internet looking to enter Web3 entrepreneurship, what good advice do you have?**

He Yi: Returning to the basics, I believe one must understand the essence of business. In fact, the success of any enterprise/project hinges on three factors: improving efficiency, reducing costs, or finding new application scenarios.

For example, Uniswap's market performance is indeed impressive; its success stems from inventing the automated market maker model, which greatly improved efficiency and reduced costs. Therefore, as long as you have enough innovation, improve efficiency, and reduce costs, there is a chance for success, which requires you to truly solve problems from the essence of business.

Many people think making money in Web3 is easy. In fact, whether through public financing or attracting users to buy tokens, it fundamentally involves overextending personal credibility, trading credibility for money.

Some people only see the present and fail to envision the vast future. Using the cash-burning model of the Web2 market won't work; financing and other retirement strategies won't work either. In this industry, one must have long-term faith, focus on product quality, innovation, and problem-solving. The more solid the foundation, the more traditional success one can achieve.

Wang Feng : Last year, there was a buzzword in the market: Rug, which translates to "running away." I observed that this usually refers to small companies. Currently, there is also "FUD" in the market, mainly referring to large enterprises. I noticed that recently there has been "Binance FUD," and users are concerned about the safety of their assets. I want to ask, does Binance have a mirror in its own world? How do you view yourselves?

He Yi: There is a term in Binance's corporate culture: Humble. Looking back at the development of the business market, those global enterprises that could be called "giants" suddenly collapsed one day, possibly due to poor management, strategic errors, or excessive pride. Our team mainly focuses on self-improvement, maintaining humility, respecting the market, embracing new things, and insisting on self-reflection.

Another term in Binance's corporate culture is "User-focused," which means truly understanding user feedback and voices. In fact, through the recent FTX incident, we have also reflected based on market feedback. Currently, there are three types of people opposing Binance: first, those from traditional finance who believe Sam's persona was that of a "good kid," and since such a good kid has collapsed, Binance must be the "bad guy"; second, those from the anarchist crowd who oppose any centralized protocols/projects, and Binance, as a leading CEX platform, naturally becomes their target for "criticism"; finally, there are supporters of SBF.

Overall, Binance insists on learning and growing from events, believing that time will prove everything. Binance has never misappropriated user assets. I previously joked about suggesting that "all exchanges could take turns accepting market scrutiny, welcoming users to withdraw funds," and also setting a fixed withdrawal day. This way, users can see who the real rule-breakers are in the market.

Wang Feng : The outside world believes that Binance has been too smooth, becoming the largest exchange in the market in five years. The BNB Chain ecosystem is also doing well. You have won battle after battle, securing two major territories. I previously read in "The Innovator's Dilemma" that some large companies win every battle but ultimately fall. Do you think this situation could happen to Binance?**

He Yi: The example you mentioned is similar to Kodak's situation. In fact, Kodak was the leader in the film market back then, and they invented the digital camera but failed to promote it, ultimately losing the entire market in the process. So, from two perspectives, it involves the issues of sustaining innovation (which can also be called incremental innovation) and disruptive innovation.

For Binance, whether in the CEX, DEX space, or non-custodial wallets, we are actually investing in all areas because our logic is to be optimistic about the industry. Since we are optimistic about the industry, we need to participate in the main tracks of the industry, whether through investment, acquisition, or building ourselves. We move forward in unison. For instance, when Binance launches new businesses, we require teams to compete against each other through an internal horse racing mechanism, fostering self-renewal and challenges. This method ensures sustained innovation.

Disruptive innovation needs to be discussed in terms of investment. Taking FTX as an example, although outsiders view it as our competitor, we also invested in it. It must be considered that only when the entire industry can "rise with the tide" can we "float higher." This is our major decision-making logic.

Wang Feng : Binance's ability to embrace innovation is well recognized in the industry. I also want to talk about regulatory issues. Do you think regulation will become a "fatal" threat to Binance? After all, you don't have a headquarters and are managed in a distributed manner.**

He Yi: If you look at Binance's public statements and attitudes, you'll find that we have been embracing regulation in recent years. We believe regulation can help the industry develop, and we need to discuss with law enforcement agencies in various countries to ensure they understand what virtual currencies and exchanges are, and that not all exchanges are "bad actors." Of course, Binance has now changed its previous online collaborative working model, which was akin to being "digital nomads," and has established offices in many regions, mainly to comply with regulatory requirements in various countries.

If you truly examine Binance's public information, we are the platform with the most licenses, having obtained licenses in 14 countries/regions, including Abu Dhabi, Dubai, South Africa, France, Italy, Spain, Poland, Lithuania, Cyprus, Kazakhstan, Australia, and New Zealand. We have gone much further down this path than other platforms. However, obtaining licenses is not the ultimate goal; we hope to conduct business according to regulatory requirements. Currently, Binance's compliance team consists of 750 people who respond to and handle anti-money laundering requirements from various countries, cooperating with law enforcement needs in various countries and regions. So far, we have responded to and handled law enforcement requests 47,000 times and conducted over 70 law enforcement training courses.

Wang Feng : Speaking of regulation and compliance, I want to know, to what extent can Binance's ideal transparency plan be opened up?**

He Yi: Binance actually hopes to achieve a high level of transparency regarding users' funds. Currently, users can check whether their assets are in Binance's corresponding wallet addresses. We have already publicly disclosed on-chain reserve proofs for nine cryptocurrencies. We aim to publicly disclose the on-chain addresses of most assets within the next two to three months.

Wang Feng: We all know that disclosing audit reports is the best form of transparency, similar to how public companies accept market supervision. In the past, Binance's stance on audit issues was that we are not a public company, and we fully understand that. However, times have changed. For example, can Binance accept audits from the Big Four? I saw CZ respond to this on CNBC, but it seems many people disagree.

He Yi: In fact, during CZ's interview, the host confused two concepts: one is on-chain reserve asset verification, and the other is financial auditing for public companies. Coinbase conducts financial audits because it is a public company. Binance is willing to accept auditing firms for asset verification, but currently, it is not a matter of whether Binance is willing to accept it; rather, it is whether auditing firms can perform on-chain asset verification for exchanges. Let me put out an ad: If any of the Big Four auditing firms are interested in verifying Binance's on-chain assets, they can contact us.

Wang Feng : After the collapse of FTX, market sentiment was extremely panicked, and Binance established an "Industry Recovery Fund." What substantial actions are currently being taken?**

He Yi: It is not an investment or charity fund, but a recovery plan. Currently, Binance is looking at two exchanges and two major project deals. Besides Binance, the total investment from other participating third parties has reached about $130 million. This portion of the funds is not deposited into Binance's account but is placed in a public address. If any projects submit information and need to rotate funds, we will share that information with other institutions participating in the plan.

I don't particularly like the past notion of "whoever steps up is the savior." In fact, Binance will still evaluate deals to truly understand what the payment is for—whether it's for the team, market share, or licenses, etc.

Wang Feng : Will Binance's investment strategy become more conservative?**

He Yi: In fact, Binance has always been quite conservative, mainly looking at several aspects: first, the team; second, innovation; and third, the long-term ceiling price. Sometimes a project is good, but if the valuation is too high, we are unlikely to invest. If the team is not strong, even if the project is good, we won't invest. However, Binance is not influenced by the size of the funds; we focus on the logic of layout across the entire industry.

Wang Feng : Could it be too conservative?**

He Yi: Binance Labs has relevant incubation programs. If early-stage entrepreneurs apply for related projects and have a solid foundation, we will also consider their pricing because we have our own judgments about the market.

Wang Feng : How do you view cycles?**

He Yi: Every industry has cycles. For example, the stock market typically has a cyclical period of about four years, and the crypto market is similar. The reason is that when the stock market is turbulent, virtual assets are referred to as "safe-haven assets." With traditional financial institutions entering the market, the two markets tend to synchronize, but when the global financial market declines, virtual assets are the first to be sold off.

Wang Feng : Many people plan to enter the Web3 market, but there are various interpretations of Web3. Who do you think will engage with Web3?**

He Yi: From the data, among the top 100 global giants, 43 have already entered Web3.

Web3 is a small circle, but many large enterprises are starting to join Web3. This scenario is similar to who would engage with the internet back in 2000, and now anyone can be an internet user. Web3 will become an infrastructure; the only question is what form Web3 will take. In 2000, it was also hard to imagine that today one could join a meeting using a mobile phone. Therefore, how Web3 will be realized in the future is built on the efforts that everyone is making at this moment.