Despite all the legal and illegal blows that it got, no one can deny that Binance is still the largest crypto exchange in the world. Everyday millions of customers transfer billions of dollars of crypto despite all regulatory sanctions which makes us think there must be something unique about the exchange. 

In this article, we will take a look at the journey of the largest exchange that went from a nearly failed startup to the ruler of the crypto world. A company which has been through good, bad and everything in between, led by a humble and visionary leader.

So, let’s begin the journey.

Origins

Prior to founding Binance, Changpeng Zhao was an entrepreneur and a tech professional. He founded Fusion Systems in 2005 in Shanghai which built a high speed trading system for stock market brokers.

In 2013, he joined Blockchain.info as the third member of the crypto wallet’s team.

Zhao started Binance in 2017 after leaving OKCoin as its CTO. He founded the company in China. However, soon he had to move out of the country because of the Chinese ban on crypto.

Binance launched its ICO which helped it attract $15 million in coin sales. This gave birth to the BNB cryptocurrency. It was initially conceived as a cryptocurrency to pay trading fee on Binance. By mid-2024, BNB commanded over $87 billion.

Investing in ICOs, Must Read These Risk Management Strategies

The cryptocurrency now has an autoburn mechanism which helps greatly in price appreciation.

Expansion

By Jan 2018, Binance became the largest crypto exchange with over $1.3 billion in valuation.

Throughout the year, Binance opened three offices in Malta, Bermuda and Jersey.

In June 2018, Binance acquired Trust Wallet, which has been one of the most popular crypto wallets.

In May 2019, Binance revealed that it became a victim of a large-scale security breach and had lost over 7000 Bitcoins valued then at $6 million.

Don’t Miss: What Happens to Crypto if Binance Goes Bankrupt?

In September 2019, Binance launched BUSD in collaboration with Paxos, a well known developer of stablecoins. Within a few years, it rose to become the third largest stablecoin after USDT and USDC. At its peak, it commanded over $23.5 billion  in market cap (November 2022). However, it had to shut down the stablecoin as its issuer Paxos was ordered by New York authorities to shut minting in early 2023.

Mature Phase

In February 2020, Binance had a brief spat with the Malta Financial Services Authority(MFSA) over regulation. The authority issued a press release stating that despite being a Maltese company, Binance was not registered with MFSA and thereby was not under its regulatory oversight.

In October 2020, the Forbes Magazine did a story on Binance which claimed that Zhao and other Binance executives designed the corporate structure in a way that would profit from the country but would avoid compliance with US regulations.

By May 2021, there were unconfirmed reports that Binance was under legal scrutiny by the Internal Revenue Service as well as by the US Department of Justice. However, it would take almost a year before US regulators finally charge Binance on paper.

In a Post-COVID World

Binance was perhaps the greatest benefactor of the COVID induced crypto bull run from 2020-2022. With lockdowns and travel restrictions all over the world, users had almost nothing to spend their money. A rising crypto trend in such times, prompted users to invest in crypto. Investments from all over the world made crypto rally faster than ever.

By the end of  2023, Binance had dominated at least 50% of the crypto market in terms of trading volumes.

This alerted several regulators all over the world and around the same time, we saw the initial troubles of the exchange.

Controversial Stand on Russia Ukraine War

The troubles of Binance might have taken concrete shape in 2022 when after a Russian invasion of Ukraine, Binance decided not to ban Russian users from its platform. In doing so, it might have irked US authorities. However, later Binance softened their approach and donated $10 million in support of Ukraine.

In 2024, the exchange pleaded guilty to having allowed billions of dollars to flow without restriction through its exchange. It also was found guilty of having  helped users bypass the US sanctions against Russia.

The Regulatory Troubles Begin

Binance vs US SEC

On June 05, 2023, the US SEC registered a case against Binance and its 13 companies that includes Binance.com, Binance.us, BAM trading services, and the group’s co-founder Changpeng Zhao. The charges include operating unregistered exchanges, unregistered broker, dealer and clearing services, misrepresenting trader controls over Binance.us and finally the offering and sale of unregistered securities.

Binance vs US Department of Justice

The case registered against Binance by the US Department of Justice (DOJ) charged the company and its CEO of committing a violation of the Bank Secrecy Act. As per the act, it was charged with transferring money without registration. The exchange was also charged with violating US Sanctions against Russia.

Binance agreed to pay the biggest fine ever paid in corporate history. The company settled the case by the US Department of Justice after paying the latter, a sum of $4.3 billion.

Further, Changpeng Zhao, co-founder of Binance had to agree to step down as the CEO and from the Board of the US arm. 

The prosecutors had also demanded a three year sentencing. However, Zhao only received a light four month sentence due to his cooperation, clean image and clear track record.

This was possible because of several reasons. Changpeng Zhao had been a very ethical entrepreneur in his past. When the US DOJ registered the case against Binance, he had Canadian citizenship and could have easily lived a life on the run. His wealth was enough for him to sustain any lifestyle. Still, he decided to cooperate with the US DOJ and even was present physically prior to sentencing.

Another factor that greatly helped in reducing the sentencing was the letters of support that poured in the court prior to his sentencing. Several well known corporate houses, industry professionals, friends and family had vouched for Zhao being a good and ethical person. Even Zhao himself penned a letter of apology to the court, asking for forgiveness.

All of these helped him not only to clarify his own image, but also secured him a less harsh prison sentence.

Binance vs Nigeria

The case of Binance was quite unique. It was summoned by the Nigerian SEC as well as multiple agencies under the government.

It was charged by the Nigerian government to work in the country without legal registrations, facilitate illicit transactions and also engage in tax evasion.

Between late February and early March 2024, the Nigerian authorities levied a $10 billion fine on Binance for involvement in money laundering. However, the notice was soon withdrawn and the government went into denial as claims of the government strong-arming Binance surfaced. The fine was later changed to $35 million by 30th March 2024.

Further, on multiple occasions, the Nigerian house of representatives had summoned Binance executives including its CEO Richard Teng. However, the CEO did not comply with any summons yet.

Binance vs French Authorities

Binance received regulatory clearance way back in 2022. The license allowed the company to provide digital asset services in France. However, by mid-2023, the Paris prosecutor’s office had charged the exchange with money laundering in the country.

Then Binance CEO Changpeng Zhao had clarified that despite unannounced inspections, the exchange fully cooperated with the French authorities.

Later the case seems to have receded into oblivion with no further updates after June 2023.

Binance and Netherlands

In 2022, Dutch authorities put a fine on Binance for operating in the country without a proper license.

However, by June 2023, due to failure to secure the correct licenses, it had to exit the country. All its users were transferred to its rival Coinmerce.

Despite everything, the exchange had said during its exit that in the future, it would reintroduce its services in the country after obtaining proper licenses and documents.

Binance in India

Binance’s troubles were unique in India. Due to the presence of strong AML laws, and the focus on increasing compliance, the exchange was initially seen as a non-complying entity. However, that soon changed with Binance’s decision to comply.

Perhaps it was the only incident where both parties, the regulator and the company, mutually understood and agreed to each other’s needs without any collateral damage.

In India, there exists a powerful but less known regulator called the Financial Intelligence Unit (FIU). It was established to detect money laundering, financial crimes and also provide intelligence inputs to the government of India.

The FIU asked crypto exchanges operating in India, both native and international, to register with the regulator, share transactions data with it and also comply with Indian money laundering laws. However, due to a lack of response, the regulator decided to put a shadow ban on Binance.com on 27th December 2023. The URL of Binance.com was blocked for Indian users and its mobile apps were taken down from Apple and Google stores.

Binance quickly responded that it was ready to comply with Indian laws. Soon the negotiations began and by May 10, 2024, Binance finalized its initial registrations with India along with KuCoin. Within a few days, both the companies got approval and a nod to resume their operations in India. Binance also reportedly agreed to pay a $2 million fine.

Binance in the UAE

UAE is perhaps the few countries where Binance actually had ease to do business. The vision of the UAE government to make the country a crypto hub has greatly helped Binance and several other crypto businesses.  The country has been hosting several successful crypto events lately.

In June 2023, Binance received a VASP license which acted as a MVP license in Dubai and allowed Binance to establish operations. Later, on 18th April 2024, Binance received full operational license in Dubai.

The Illegality of the Legal Troubles

It’s well known that the troubles of all crypto-native companies would have been far less if countries had crypto regulations in place. Till date only a few countries have crossed the policy stage.

When the US charged Binance, it did not even have a draft policy for crypto, let alone having a concrete set of regulations. The SEC had repeatedly tried to impose its authority to regulate crypto even when it had lost a case against Ripple. That case also made it clear that any retail sales of XRP never amounted to their classification as securities.

Similarly, the prosecution of Binance under the Nigerian laws never took any concrete stand because crypto as a whole was for tax evasion, money laundering and several other crimes. Such services were provided by several other companies including those native to the country.

Data by WEF shows that even as late as Jan 2024, most countries are still unable to regulate crypto in its entirety. Only a few economies such as the EU, UAE, Switzerland and Japan seem to have comprehensive regulations.

Choosing a Way Forward

Battling with authorities had always proven fatal even if someone was right. The Ripple vs SEC case dragged on for years and despite a win by Ripple (in relation to the retail sales), it had to spend a huge sum, estimated at $1.3 billion, on just legal fees. Yet, the case is far from being a complete resolution.

Read More: Ultimate Guide to Safe P2P Transactions

It won’t be an overstatement to assume that Binance decided to skip all those legal headaches and went directly into resolution. Not only was it an apt decision with respect to cost, but also it helped Binance skip all the negative media attention. Further, compliance also strengthened its position in the eye of the regulators and lawmakers.

Frequently Asked Questions

Can Indians Legally Trade on Binance?

Binance has registered with the Indian Financial Intelligence Unit on May 11, 2024 and has received a nod to resume its operations in the country. Though it was never illegal to trade on Binance, yet with the registration, using Binance is more lawful than ever in India

Is Trading in Binance Safe and Legal?

Before trying to trade, take a look at the legal status of Binance in your country. If it is legally operational, you can trade safely. However, please beware of P2P transactions as they pose a risk of fraud.

This detailed match analysis covers key moments, player performances, and tactical insights.