Zhao Changpeng's latest response on BUSD, Circle, U.S. regulation, and other issues

Original Title: 《Highlights From CZ's Valentine's Day AMA》

Author: Zhao Changpeng

Translation: Frank, Foresight News

Key Points:

• Binance CEO Zhao Changpeng (CZ) spent an hour answering user questions on Twitter Space on February 14, 2023, with most discussions focusing on stablecoins and BUSD;
• BUSD is not issued by Binance; it carries the Binance brand but is not created or operated by Binance. Binance is a platform aimed at helping people access various digital assets (including stablecoins) and will continue to collaborate with multiple stablecoin issuers;
• Although the minting of new BUSD tokens has stopped, the existing supply of BUSD in circulation is safe. If you look at the notice from the New York Department of Financial Services (NYDFS), you will see they specifically instructed Paxos to ensure BUSD maintains its 1:1 peg and that customers can redeem it in an orderly manner;
• Regulation is tightening. In the long run, this will limit traditional financial service providers' adoption of crypto technology, reducing their competitiveness; however, the crypto industry is highly resilient;
• Different jurisdictions have different regulatory regimes for blockchain, Web3, and crypto, for example, Dubai, Bahrain, and France currently have a generally positive attitude;

CZ's Comments: The following is a summary of the questions I answered during the Twitter AMA on February 14, 2023, covering topics such as BUSD, BUSD alternatives, Circle, and more. Please note that this is not an accurate transcription; I removed many stutters and rephrased for clarity (and added some omitted content).

On BUSD and Alternatives to Fiat-Backed Stablecoins

Question: Given the recent developments with BUSD and the failure of Luna/UST, what alternatives do you see for fiat-backed stablecoins? Also, why are we still operating within this dollar system? As an emerging industry, shouldn't we have hard assets backing us, such as why don't we turn to gold as a supported stablecoin? Do you see any issues with that?

CZ: There are many topics here. First, most people's trading costs are still calculated in fiat currency; for example, people price cryptocurrencies in dollars, so we still need fiat-based stablecoins.

However, considering the pressures faced by dollar-based stablecoins, I believe the crypto industry may increasingly turn to non-dollar stablecoins, including euros, yen, and possibly even yuan-backed stablecoins. We are now seeing many such options on the table.

Algorithmic stablecoins may also rise again, but they have different risk characteristics. When users use one asset as collateral for another, there is always a risk of decoupling, and we need to ensure that these risks are clearly presented to users.

One issue with UST was its lack of transparency; when UST collapsed, no one knew what Do Kwon or his team were doing, and Do Kwon was too slow to act in using Bitcoin reserves to restore UST's peg.

If the algorithm for restoring the peg were transparently coded in smart contracts (like DeFi/Uniswap), people would at least know the risks involved, which could be a better approach, but it needs further development.

As for gold-backed or physically-backed stablecoins, that's a completely different topic. I believe these have not yet become popular, mainly because it's nearly impossible to verify whether the asset backing the gold truly exists, and their pricing is difficult to calculate. So, I think these are not realistic options for stablecoins at this time.

We face many problems with numerous potential solutions, and many projects dedicated to these solutions have reached out to us in the past few days. Overall, the crypto industry will ultimately find solutions and continue to evolve.

On Whether BUSD is Still Safe

Question: Thank you for being here on Valentine's Day. My question is, is BUSD still safe?

CZ: First, happy Valentine's Day, everyone!

Secondly, regarding BUSD, if you look at the notice published on the New York Department of Financial Services (NYDFS) website, you will find that they specifically instructed Paxos to ensure BUSD maintains its 1:1 peg and that customers can redeem it in an orderly manner.

Therefore, even though the minting of new BUSD has stopped, the existing supply of BUSD in circulation is safe.

No user should incur any losses.

On BUSD and Overall Market Sentiment

Question: Overall, what is your general view on the current situation of BUSD? What impact do you think this will have on the market?

CZ: Overall, regulation is becoming stricter. We have seen several banks stop supporting crypto businesses; recently, Coinbase was fined $100 million, and then Kraken was fined $30 million for its Earn program, and now it's BUSD's turn.

In the short term, the cryptocurrency industry will be negatively impacted to some extent, as we lose fiat on-ramps, reduce product offerings, etc., but the cryptocurrency industry is extremely resilient; we have already seen the crypto market recover after the FTX bankruptcy.

However, in the long run, increasingly tightening regulation will truly limit traditional financial service providers' pace in adopting crypto technology, leading to delays in their blockchain adoption by at least three to five years, which will reduce their competitiveness in this new field in the future.

On NFTs

Question: I would like to hear your thoughts on NFTs, and do you actually own any NFTs?

CZ: Okay, the short answer is: No, I do not own any NFTs.

I am not an art collector, and I don't listen to music much. My background is as a programmer, and I run a company; if you have read my blog, you might already know this.

I have received some NFTs, but I actually don't remember the wallet address I used to receive them.

I think the technology behind NFTs is indeed great, but as for what this technology can do, we have only seen the tip of the iceberg.

On Stablecoins and Binance's Role

Question: How do you see the future development of the stablecoin market, and what role do you think Binance plays in this field? Secondly, how do you respond to criticisms that stablecoins are just another form of fiat currency that undermines the decentralization characteristics or spirit of the crypto space?

CZ: First of all, it should be said that BUSD is not issued by Binance.

It carries the Binance brand—just as we agreed. But this is not something we created; the idea was proposed by Paxos, so we see ourselves (Binance) as a facilitator.

Binance is a platform aimed at helping others access cryptocurrencies (including stablecoins); we provide liquidity, and we always use multiple stablecoins. Just like now, we support USDT, USDC, TUSD, and several other stablecoins, and we will continue to collaborate with multiple stablecoin issuers or creators.

As for the second part, I believe stablecoins provide a lot of value in the crypto industry; they are definitely beneficial for cryptocurrencies. Stablecoins are somewhat of a hybrid between native cryptocurrencies (like Bitcoin) and the traditional fiat currency world. If you want to transfer money across borders using banks, it is quite difficult, slow, and expensive, but when you use stablecoins running on the blockchain, the transfers are much faster and cheaper.

Without stablecoins, you might see different cryptocurrency prices across different countries and exchanges.

On Reports Regarding Circle and Binance, BUSD

Question: My question is about a Bloomberg article that said Circle complained to regulators about your management of BUSD. Do you see this as an attack on Binance? What are your thoughts on this?

CZ: Well, several people sent me that article, and I really don't believe it's true.

I think any professional industry participant knows that harming one industry player will harm all players. As BUSD is harmed, USDC also faces significant redemptions and a shrinking market cap, so I think Circle is much smarter.

Additionally, we know that the media loves to pit A against B and then go "3, 2, 1, fight!" We can't blame them; their job is to sell stories, but we need to take a reserved attitude towards media articles, so I won't read too deeply into those articles.

Binance has been working with multiple stablecoin partners and will continue to do so, striving to help build an open global ecosystem.

On the SEC's Scrutiny of Cryptocurrencies

Question: The U.S. Securities and Exchange Commission (SEC) has basically announced an open hunting season on crypto projects—at least that's how I see it. What advice do you have for other crypto founders on how to survive? Moving to Dubai is one suggestion. Do you have any other advice for founders?

CZ: Well, I wouldn't describe the situation that way. I don't think the SEC would publicly say "hunting season" anywhere; that might be someone else's interpretation of things.

But there will definitely be more regulatory scrutiny, and they will pay more attention to cryptocurrencies. As you mentioned, different jurisdictions now have different regulatory regimes for blockchain, Web3, and cryptocurrencies.

For example, Dubai, Bahrain, and France have a positive attitude towards cryptocurrencies, and many other regions are also very friendly. So one option is to explore multiple places; if you are serious about your project, moving to a new country might not be a bad thing.

People often move to different neighborhoods within a city or different cities within a country, but sometimes they are very afraid to move to a new country. I don't know why that is; we all live on a little rock called Earth.

I'm not an expert or a lawyer, but I think you definitely want to get professional advice. Basically, consult a lawyer who understands your product and ensures it doesn't touch any regulatory red lines, but there is currently quite a bit of uncertainty and lack of clarity.

One thing you can do is proactively communicate with regulators; some regulators are more approachable than others. So it depends on luck, as well as who you are or who you know; at least most regulators claim they welcome people to come talk to them.

Another approach you might consider is to see how others are doing it now, somewhat following the "industry norms," which is a kind of herd mentality.

Overall, there are indeed some quite favorable jurisdictions for the rapidly evolving crypto industry.