CZ and Binance: The Man Who Built Crypto's Biggest Empire

[00:00:09] Morning folks and welcome to today's episode called CZ and Binance, The Man Who Built Cryptos Biggest Empire. Like this is a guy who grew up in a village in rural China with no running water and today he's worth $110 billion. I examine his relationship with Sam Bankman-Fried and his subsequent involvement in the multi-billion dollar collapse of Bankman-Fried's company FTX.

[00:00:36] I also look at how he tried to keep Binance away from any type of regulation and this ultimately led him to serve time in jail. But then, very controversially, he got a presidential pardon. It is a cracking story. Enjoy. So, Changpeng Zhao, I'm sure I'm butchering that, but he's known as CZ to everyone. He's born in 1977, just one year after the end of Mao's Cultural Revolution.

[00:01:06] So, this was a decade-long campaign that destroyed the lives of China's educated classes. You know, professors, doctors, scientists, they were more or less stripped of their positions and then they were sent to the countryside for re-education. And his father was one of these. He was a university physics professor, which is why CZ grows up in Jianghu.

[00:01:31] And again, I'm probably butchering that, but this is a village in rural China with no running water or gas. Then in 1989, after the Tiananmen Square crackdown, the family moved to Canada and they were living near the University of British Columbia in Australia because his father was completing a geophysics doctor there. And money was always tight. His mother worked as a seamstress to make ends meet.

[00:01:55] But despite this, his father spent 7,000 Canadian dollars on an IBM computer and he used it to teach a son basic programming. Now, by the time he's 14, CZ is working at a gas station late at night. He's also working at McDonald's and he's achieving very well academically because he comes 10th in Canada's National Mathematics Competition. 1995, CZ then enrolls at McGill University in Montreal to study computer science.

[00:02:24] And throughout his Udanda College, he flies very much under the radar. There's not much information on his early years. But then after graduating, he goes to Tokyo because he lands a job building what traders call a matching engine. So this is software that automatically payers, buyers and sellers in the market and executes trades really fast because every millisecond matters.

[00:02:51] The faster the system, the more valuable it is to banks, hedge funds and trading firms. And CZ is obviously very, very good at what he does because next he gets poached by Bloomberg in New York. He's promoted three times within two years. And in terms of what he was like back then, his boss at Bloomberg said that CZ was a smart software technologist with excellent people skills.

[00:03:18] And he also added that he's not the classic Wall Street asshole and not the classic technology sociopath. So a pretty nice guy overall. But like every born entrepreneur CZ, he's he's itching to go out on his own. And so in late 2005, he leaves Bloomberg, goes to Shanghai and co-founds Fusion Systems. This is a company that builds high frequency trading platforms for major brokerages.

[00:03:45] And Fusion got a reputation for building some of the fastest high frequency trading systems. And while I wasn't able to get any actual revenue figures for the company, it's clear that CZ and Fusion Systems was doing very well because CZ was able to afford a $1.1 million apartment in Shanghai. So business must be good. But then in September 2013, everything changed for CZ.

[00:04:11] This is when he meets a few guys at a poker game and they tell him about Bitcoin. So for some context, Bitcoin at this stage was just four years old and each coin traded at $140 in 2013 when CZ first heard about it. Now, most investors dismissed Bitcoin as a niche internet curiosity. You know, it had little chance of challenging the traditional financial system.

[00:04:39] It was really seen as a fringe experiment for libertarians, programmers or speculators. Now, at this poker game, CZ is advised to put around 10% of his net worth into Bitcoin. But he goes off, does his own research. He downloads a Bitcoin wallet. And this is a quote from him. After the first Bitcoin transaction, I was amazed. It was the same feeling as when I first used a water pump, when I first saw a light bulb and when I first sent and received an email.

[00:05:09] I knew right there and then the blockchain is the new technology for money. And so he doesn't just put 10% in. He goes all in. He resigns from Fusion Systems, sells his Shanghai apartment and puts all of his money into Bitcoin. Now, for context again, there was a rally on Bitcoin during 2013. So by the time CZ invests, it's about $600. And look, just so you know where I stand on Bitcoin.

[00:05:37] Over the years, I've done a good bit of research on it. And someone close to me is a big believer in it. He's held onto his Bitcoin for many years. And so he's given me additional context as to why he believes in it so much. And I guess that's the thing about Bitcoin and crypto. It's a belief. You either believe it's the future of money or not. Or like me, you're still sitting on the fence. I mean, I love the concept.

[00:06:05] But I do worry about the damage that bad actors have done and could still do to its long term viability. But the one thing I will say is that I really like CZ's commitment. Because you have to admire someone who believes in something so much that they're willing to bet the farm on it. So anyway, in February 2014, just a few months into his Bitcoin investment, disaster strikes.

[00:06:33] Mt. Gox, the world's largest Bitcoin exchange, and the platform to which most Bitcoin trading took place, it collapses after being hacked, losing 650,000 coins. And just to note, those coins would now be worth about $40 billion today. So for many people, this looked like the end of Bitcoin and it crashed to $200. But CZ's response was to hold his positions. He didn't sell a single coin.

[00:07:00] Then in mid-2014, he was recruited as CTO for OKCoin. Now at that time, it was one of China's biggest crypto exchanges. And today it's known as OKX. And it's still one of the biggest cryptocurrency trading platforms in the world. And if anyone follows Formula One, you'll see their logo on the side of the McLaren cars. Anyway, it's at OKCoin or OKX where he meets E-He.

[00:07:26] She's a former TV host who is brilliant at marketing and user growth. They eventually become life partners and would have three children together. But CZ falls out with OKCoin's, OKX's founder, Star Zoo, when Zoo tries to renegotiate CZ's 10% equity stake in the company. And as a result, CZ and E-He, they walk out. But strangely, he doesn't go straight into crypto.

[00:07:54] He first starts a business in China, which could be best described as, I suppose, a Shopify-type platform for high-frequency trading. Essentially, white-label, ready-made codes that smaller trading firms can plug into and use to execute trades at really fast speeds without having to build the infrastructure themselves.

[00:08:16] And it does very well for a few years until 2017, when the Chinese government launched a huge regulatory crackdown that puts an end to CZ's business. But CZ, he understands that the software he's using can be repurposed for the cryptocurrency market. And so in June 2017, he decided to launch a new digital exchange by raising $15 million in what's called an initial coin offering or an ICO.

[00:08:46] So for people who aren't familiar with crypto, me included, think of an ICO as high-tech crowdfunding. Instead of going to Wall Street or the big VCs for cash, you publish a white paper. This is a public manifesto detailing your tech blueprint and your economic vision. Anyone in the world can read it, and if they like it, then they buy your new custom digital tokens, and this finances the launch.

[00:09:11] So CZ was initially going to call the business BitMart, but EE, and again, I hope I'm not butchering that name, the marketing expert, she said that BitMart sounded like a supermarket, and she suggested Binance, a blend of binary and finance. Good call in my opinion. On the 22nd of June 2017, CZ released the Binance white paper to the public, and it details a five-round token sale targeting 100 million BNB tokens.

[00:09:40] This is Binance's own cryptocurrency, which functions like the exchange's native currency. So it gives holders discounted trading fees and a direct financial stake in Binance's future growth. So the more Binance grew, the more valuable BNB becomes. So buying in early was effectively buying a piece of the exchange itself. Now because it's a tiered sale designed to trigger maximum FOMO,

[00:10:06] the price just starts at 10 cents and then scales up with each round. But before the launch, his former boss at OK Chain, Starzoo, he flooded the Chinese social media channels and WeChat groups with rumours. He was claiming that CZ is a fraud, that he had no real technical expertise, that Binance was just a ghost or fraudulent exchange designed to steal users' funds. And so to save the project's credibility,

[00:10:35] E.E., she leveraged her very large following in the Chinese crypto community. She publicly endorsed CZ, she defended Binance in interviews and on social media posts, and it worked. All five rounds sell out in seconds. And Binance, it takes off faster than anyone could have predicted. This is an article from Forbes in 2018. Seven months ago, Binance didn't exist.

[00:11:02] Since then, it has attracted 6 million users, making it the world's largest crypto exchange. Since its July initial coin offering, a Binance token, BNB, has soared from about 10 cents to $13, giving it a market cap of $1.3 billion. And its revenues, like, were really remarkable. It had profits of $200 million by its second ever quarter.

[00:11:29] So why or how did it manage to grow so quickly? Well, part of the reason is the product. It was simple enough for beginners, but it had the speed, the tools and the analytics that experienced traders wanted. It also charged just 0.1% per transaction. So it undercut almost every competitor.

[00:11:53] The timing mattered as well, because by 2017, crypto is booming. Millions of new investors are flooding in. Bitcoin, which CZ had bought at $600 in 2013, by December 2017, it had hit $20,000. And as a result, existing exchanges can't keep up. Some suffer outages. Others have to stop accepting new customers.

[00:12:20] But CZ and Binance doesn't have that problem, because he'd spent his entire career building trading infrastructure for professional firms. So Binance is fast, it's reliable, and it's built for massive volume. And there's something else as well. Binance isn't connecting crypto to traditional banking systems. Most competitors are drowning in like compliance and regulatory headaches.

[00:12:47] But CZ sidesteps all of that, because Binance is launched as a crypto to crypto exchange. If you own Bitcoin or Ethereum, you can start trading almost immediately. No bank account needed. And this means that Binance can onboard users from anywhere really fast. And it also lists far more cryptocurrencies than most of its rivals. So its success isn't down to one thing alone.

[00:13:14] It's the timing, the fees, the product, the borderless model, and a founder whose entire career, because of his technical expertise, prepared him for just exactly this moment and for this market. But as everyone who has any inkling of crypto markets knows, there have been so many ups and downs. And in January 2018, there began what was called the crypto winter.

[00:13:42] With Bitcoin, it lost 50% of its values. And other cryptocurrencies lost up to 70%. This was due to a lot of factors, including bad actors, Wall Street short in crypto, increased regulation. And this is from Bloomberg in 2018. Perhaps most worryingly for Binance, regulators around the world are clamping down on the wildest environment that has enabled its breakneck growth. The exchanges, know your customer or KYC policies

[00:14:10] are some of the industry's least rigorous. Users need only an email address to open Binance trading accounts. CZ keeps the locations of Binance's offices and servers secret, making it tough to determine which country has jurisdiction over the company. Now, it's really not surprising that a lot of Binance's customers don't want the sector to be heavy regulated. Like, it makes perfect sense.

[00:14:37] Many of them are into crypto precisely because they believe it has the potential to disrupt the entire traditional financial system. And the last thing they want is to be absorbed back into the status quo they were trying to escape. One Binance user who was quoted in that Bloomberg article simply said, The less regulation, the better. I'm confident in Binance's ability to secure its own platform.

[00:15:04] But the thing is, whether you like it or not, regulation is the reality. I mean, some jurisdictions over-regulate, some under-regulate, and you're never going to please everyone. But when something grows at the speed that crypto grew, pulling in hundreds of millions of dollars of ordinary people's money, regulation is inevitable. I mean, China didn't even try to regulate it. They just banned it.

[00:15:32] In September 2017, Beijing officially outlawed ICOs and domestic crypto exchanges. So CZ moved Binance to Japan. Then he moved it to Malta. And when Malta's rules became inconvenient, he moved again. But it's in the United States where the real trouble begins. And just to give you a sense of how loosely Binance was operating at this point, here's an encrypted internal message from their own chief compliance officer, sent in 2017.

[00:16:02] We are operating as a fucking unlicensed securities exchange in the USA, bro. And it gets worse. US prosecutors later alleged that Binance's internal compliance teams repeatedly warned senior management that terrorist groups, sanctioned entities, and other bad actors were using the platform.

[00:16:26] And the government argued that Binance prioritized rapid growth over regulatory compliance. So in what appeared to be, I suppose you'd call it a concession to US regulators, CZ launched Binance.us. So this was a separate platform for American customers who are now officially banned from the original exchange. So on paper, this looked like compliance.

[00:16:51] But in practice, it had zero impact because any US customer could bypass the restriction by using a VPN. And court documents revealed that CZ, he knew this and he was actively encouraging it. And these are in his own words.

[00:17:19] So in effect, Binance was telling regulators one thing and then coaching its biggest clients to do the exact opposite. And then something happened that would change everything, not just for Binance, but for the entire crypto industry. FTX collapsed. So for some context, CZ and Sam Bankman-Fried, the FTX founder,

[00:17:46] they first met in 2019 at a conference in Singapore. And CZ's first impression of Bankman-Fried, who was 15 years younger, was cautious, but not unkind. He said that Bankman-Fried was a smart young kid. As a result, Binance took an early equity stake in FTX, estimated to be about $100 million. And FTX grew rapidly. And as we know, Bankman-Fried, he cultivated an image unlike anybody else in crypto.

[00:18:15] You know, where CZ was elusive, Bankman-Fried seemed to crave the spotlight. He was the guy in shorts and the messy hair who testified before Congress, who donated hundreds of millions to political causes, who positioned himself as the responsible, legitimate face of this chaotic industry. And this, of course, would have put CZ and other crypto bosses on edge. I mean, as CZ later said,

[00:18:43] I don't mind his constant self-promotion, but it often invited regulatory scrutiny to industry players, though it never seemed to land on him. So that's what he said of Bankman-Fried. CZ then heard that Bankman-Fried and his team were quietly running a whispering campaign to US officials, spreading xenophobic rumours that CZ was the tool of the Chinese government and a threat to national security. As you can imagine, CZ was furious.

[00:19:12] By mid-2021, when crypto was at its peak, Bitcoin had hit $69,000 by this stage, Binance alone had handled more than $34 trillion in trading volume that year, CZ decided to cash out of his FTX investment. So he sold his equity stake back to FTX for $2.1 billion. And he was paid in a combination of stablecoins and FTT, which was FTX's own native token. And that part is important.

[00:19:42] OK, then we get to 2022. There's another crypto crash. This began with the $40 billion collapse of Terraluna tokens. These were two cryptocurrencies that had been considered among the most promising in the entire market. There was widespread panic. There was bank runs across major crypto lenders. Bitcoin fell from $69,000 to $15,500 by November 2022. Over $2 trillion was wiped from the crypto market and many crypto companies were closing.

[00:20:12] So there's a lot of bad news. And then also in early November 2022, the crypto publication CoinDesk published a story based on a leaked balance sheet that showed that Alameda Research, FTX's trading firm, which was supposedly separate and independent from FTX, was propped up almost entirely by FTT. Remember, FTX's own token. So the two companies were not separate at all.

[00:20:41] They were financially intertwined in a way that if FTX fell, both FTX and Alameda would collapse. And it got worse. FTX had been taking customers deposits and sending them to Alameda to fund its trading operations. And these trading operations, it turned out, had gone very, very badly. There was an $8 billion hole in the books.

[00:21:08] Now, when this FTX story broke, the market was unsettled, but it didn't panic straight away. And this is mainly because of Bankman Fried's reputation, because of his public profile, his pronouncements. FTX was widely viewed as one of the safest, most stable businesses in crypto.

[00:21:27] But everything changed on November 6th, 2022, when CZ posted a single tweet where he announced that Binance would liquidate its entire FTT position worth around $520 million. And here's what he said. We gave support before, but we won't pretend to make love after divorce.

[00:21:50] We are not against anyone, but we won't support people who lobby against other industry players behind our backs. Onwards. So, in effect, the biggest exchange in the world, run by the man who had once backed FTX and knew it better than almost anyone, was dumping FTX's token, the FTT.

[00:22:12] Now, my take on this is that CZ's decision to do what he did was driven by a mixture of pragmatism and revenge. Pragmatism because he needed to cash out his FTT before they became worthless. And revenge because he didn't need to publicize it. By doing so, he knew he would cause panic. And he did.

[00:22:45] Bankman Freed, in his hour of need, reached out to CZ directly asking for help. And remarkably, CZ agreed. I'm guessing he probably thought this might be worth looking at. So, Binance signed a non-binding letter of intent to acquire FTX. But, after quick due diligence, CZ pulled out. Bankman Freed then sent one final tweet directed at CZ. And this is how it read.

[00:23:11] At one point, I have more to say about a particular sparring partner, so to speak. But you know, glass houses. So, for now, all I'll say is, well played. You won. Two days later, on November 11th, 2022, FTX filed for bankruptcy. And Bankman Freed was later sentenced, as we know, to 25 years in jail for fraud. More crucially though, for CZ and for Binance, the fall of FTX.

[00:23:39] It did significant damage to the reputation of the entire industry. And it also brought the full force of political and regulatory scrutiny down on top of it. Pressure intensified throughout 2022 and 2023. And CZ acknowledged that the old model was no longer sustainable when he announced that the company was ditching its nomadic structure. And I quote,

[00:24:05] We are making this pivot into a fully regulated financial business. But this wasn't enough to save him or Binance from prosecution. And it's no wonder when you read the internal texts and emails. I already mentioned some a few minutes ago from the chief compliance officer. And this guy seemed to have been intent on getting the company into trouble. Because here's another one from him from 2020, where he wrote the following when describing some of Binance's customers.

[00:24:35] Like, come on, they are here for crime. And a colleague agreed, writing back, We see the bad, but we close two eyes. So, in November 2023, CZ walked into a courtroom in Seattle and pleaded guilty to willfully violating the Bank Secrecy Act or the BSA. The judge detailed how the platform system enabled billions to flow to ransomware attackers, cyber criminals and terrorist networks. And CZ said in the courtroom,

[00:25:04] I made mistakes. I must take responsibility. Binance pays $4.3 billion in total criminal fines. CZ personally pays $50 million to the Department of Justice and a further $150 million as a civil penalty. And under the settlement, CZ is permanently barred from running or managing the exchange. And the oversight structure Binance now operates under is pretty intrusive.

[00:25:32] Then, in April 2024, at his sentencing, CZ does say, I failed, I deeply regret my failure and I am sorry. The judge sentenced him to four months in jail. And CZ, he becomes the richest person ever to go to a US prison. He also became the very first person to be sent to jail for violating the BSA, the Bank Secrecy Act. Now, I have a bit of a problem with this.

[00:26:00] You see, when global banking giants like HSBC or JP Morgan or Goldman Sachs, when they were caught violating the BSA and facilitating illicit money flows at a staggering scale, they paid massive fines, but no top executives were ever sent to federal prison. And now, I've talked about this many times previously, and I believe top executives should face prison time when they break these laws.

[00:26:26] So, in a way, yes, I think CZ deserved a sentence. But only if this now sets a precedent going forward. If it doesn't, then it's a case of Wall Street does it, it's a cost of doing business, but when crypto does it, it's a prison sentence. And that's not fair. But, I suppose, the good news for CZ is that he eventually received a pardon from President Trump. And look, as you know, I don't like getting into politics in this show,

[00:26:56] but I need to lay out the facts on this pardon because they are pretty extraordinary. And after I give you the facts, you can make up your own mind. So, in the months leading up to the pardon, Binance became closely involved with World Liberty Financial. This is the crypto venture backed by the Trump family. Binance provided the technical infrastructure to help launch USD1, the Trump family's own stable coin.

[00:27:24] And a stable coin, just to explain, is a cryptocurrency pegged to the dollar. So, one USD1 always equals one dollar, making it a stable digital currency rather than a volatile one. And a stable coin only becomes valuable when people actually use it and hold it, because the issuer takes those deposits and invests them in safe assets like US Treasuries, generating returns.

[00:27:50] So, the more USD1 in circulation, the more money flows to the Trump family. Okay? Then in May 2025, Binance negotiated to take a $2 billion investment from a United Arab Emirates sovereign fund. And what's crucial here is that the investment wasn't paid in dollars. It was paid in USD1.

[00:28:18] And that single investment or transaction instantly made the Trump's family token, USD1, one of the largest stable coins in the world, and created reserves that Bloomberg estimated could generate roughly $80 million a year in investment income going directly to the Trump's. Five months after that investment and deal was done,

[00:28:45] Trump signed a full and unconditional pardon for CZ. In other words, just so this is crystal clear, Binance helped build the product USD1 for the Trump family, then engineered a deal that made USD1 enormously valuable to the tune where the president's family stands to make tens of millions of dollars a year. And after the deal is signed, Trump pardoned CZ. Those are the facts. And even some of Trump's own supporters,

[00:29:14] they see it for what it is. Joe Lonsdale, the billionaire venture capitalist who co-founded Palantir and is a huge Trump supporter. He wrote on X, POTUS, as in Trump, has been terribly advised on this. It makes it look like a massive fraud is happening. Anyway, draw your own conclusions. So, where are CZ and Binance now? Well, the company remains the undisputed king of crypto.

[00:29:41] It handles more than a third of every crypto trade made anywhere in the world and is almost nine times bigger than its closest rivals. It has over 300 million registered users and annual revenue of between 16 and 17 billion dollars. Now, as for CZ himself, he's still barred from running Binance's day-to-day operations. So, he spends his time investing in AI, biotech, robotics.

[00:30:07] He's advising financial governments on digital asset frameworks. He's building a free, AI-driven education platform for underprivileged children. He still owns 90% of Binance. And as a result, he is now the 17th richest person in the world with a $110 billion fortune. As for CZ the man, like, he's not charismatic. He's not outgoing. And despite all the drama of the last few years,

[00:30:36] he himself isn't dramatic. In fact, he even says of himself that he's pretty boring. And I have to say, I kind of like that about him. Now, yes, you could look at the compliance failures and argue that CZ prioritized growth over regulation. But I think it's also important to understand the mindset of someone who genuinely believes in Bitcoin and cryptocurrency.

[00:31:01] Many early crypto believers, they saw it as a way to build an entirely new financial system free from banks, governments and the regulators that came with them. So it's hardly surprising that many of them viewed regulation as something to resist rather than embrace.

[00:31:21] Like in the end, I think CZ is an exceptionally smart technologist who had the right idea, built the right product and launched it at exactly the right time. He might not be the most fascinating character, but the story of Binance is fascinating. And that brings us to listeners emails. And this one comes from Luke, who loved me to do a story on Andrew Left.

[00:31:45] He's the short seller who was recently convicted of securities fraud and is facing 25 years in jail. This is a fantastic suggestion. And I will definitely do an episode on Andrew left within the next few weeks. Thanks for the suggestion, Luke, and for listening. And remember, if you have any comments, any corrections or any story ideas, email me at info at gbspod.com. All the best, folks.