173 - CZ & the State of Binance

foreign explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Sean Adams I'm here with David Hoffman and we're here to help you become more bankless we have CZ on the podcast today CZ of course is the CEO and founder of the world's largest crypto exchange very influential in the crypto industry today and this episode is mostly a lot of

questions we let CZ speak we ask him things like how can we tell what's fun and what's real about binance number two what happened with FTX did the events of 2023 change binance how did it change crypto overall number three we ask about the mood in crypto right now what's different about today's bear Market versus previous bear markets he's been in will we actually get another cycle is there a future bull market on the horizon and finally we end with questions from the community questions

from people like Justin Drake djen Spartan many others and we ask those directly to CZ David why is this episode significant to you it's not often that we are able to talk to CZ um the binance world the binance ecosystem it kind of seems like a black box it seems like it's got many different parts especially to us in the west who uh we are just not binance's customer base like what's going on over there it's always it's always a question as to like what's up with Finance what's up with CZ uh and so this seems to be

our semi-fregular check-in with CZ we had him on about a year ago last July 2022 right in between uh ethereal's Capital liquidation and before FTX liquidation so kind of before all of this hit the fan uh and now uh we are in a much different part of the crypto world of crypto Market cycle and so what's Finance up to what's easy up to is always an interesting question no matter where we are in the world uh and today we get another snapshot in time is to answer that question yeah I think it's it's hard to overstate

the importance of Finance in the ecosystem and even if you don't believe that because you don't use B Finance or or whatever else in many countries binance is crypto to them and it's it's kind of their first entry Port so we really need to know what's what's going on uh in his mind and I think this is going to be an interesting debrief for you and I and of course the debrief guys is the episode after the episode I know you have some thoughts I have some thoughts too and I I should let people know a lot of people didn't want us to

have CZ on the podcast they they they thought um that he shouldn't we shouldn't even have this conversation that that we shouldn't host them so I think this episode is is controversial and uh I want to talk to you about that during the debrief what were your actual Impressions our strategy is that controversy Justified I think is another big question I'd like to unpack I think going to this episode we really just let him talk and asked a whole bunch of questions because um look man I don't know who's the Arbiter of what's true in this particular case it's just kind of

like well we'll see right let's let the Lindy effect anyway I want to talk about all of that with you in the debrief and of course guys if you want access to that episode you can upgrade to become a citizen and get access to the bankless premium feed that's where we release these bonus episodes including all of our debriefs after this show uh so click into that guys we're gonna get right to the episode with CZ but before we do we want to thank the sponsors that made this episode possible including bankless Nation excited to reintroduce you to CZ of course he's been on the podcast

before he's the CEO and founder of binance which is an organization so large I feel like it's not quite right to call it a centralized exchange I think it's much more than that the last time we had CZ on was uh June no actually July of 2022 that was almost a year ago my how things changed since then it was a whole different world FDX was still in exchange back then uh I guess Bitcoin was was going down because this was post three hours capital and Tara but we were in a whole

different stage of the market cycle so we brought CZ on to talk about 2023 where we are today CZ welcome back to bankless how you doing well yep I'm doing all right thanks for having me yeah it's great to have you um I uh I'm hearkening back to a tweet that you put out that that hit me in uh January early January uh 2023 and you said I want to try to keep 2023 simple spend more time on less things here are the do's and the don'ts number one education number two

compliance number three product and service I imagine those are the dues and the don't number four ignore fud fake news attacks Etc in the future would appreciate if you can link to this post when I tweet four I want to ask you ceezy how's it going have you been able to keep 2023 simple actually no no um keeps coming but now we have got like every day I could have tweaked four uh every day um but then luckily now I don't even have to tweet for it if you

look at the if you look at the news comments um on their Twitter comments everyone else is tweeting for so I think the article that post worked out quite well but it hasn't gone to what I hope that we don't really need to tweet for just focus on the top three so for me I'm trying really really hard to just focus on product Building Products education compliance Etc but you know the keeps coming but after a certain point the flood loses its marginal impact right so no after a media writes 40 art negative

articles about you the 41st is not gonna have much more um so the the marginal impact is lost and we don't respond to them anymore so um yeah so I think the mentality is still there you have the reality is not as good as I would have hoped in terms of the number but we keep building yeah yeah the four meme is a master class in how to uh incept a meme into the world of crypto Twitter uh it is now thoroughly inside of crypto culture there's like a handful of things like

this like binance that seem to just be flood magnets like tether also comes to mind just absolute fud magnet like why do you think what about binance attract so much fun uh yeah so what first of all number on the floor I didn't think it was gonna be a meme and then people turn into meme which is fantastic and then we kind of filled up on it a bit and posted a few photos so I think a lot of the fun in the industry just targets the size right tether is Big um it's probably one he's probably the biggest company in crypto

now um yeah in terms of like value locked in the platform the revenue Etc um buyers actually if we just look at the centralized exchange we we we're probably smaller um so but uh but we're we're relatively big um tether is less public um their CEOs don't are not in the community and we are public right so we we get on podcasts uh we we engage we entrenching the community we are a more TC platform we have made like we today we have about 140 million retail users

and they're all over the world so we feel like we have to engage um and I think I think it's mainly just share size and well there's a few things size I think is probably the biggest one that you know people just like to talk up if you write a negative article about a smaller exchange nobody cares you don't get clicks but if whatever article you put binance name on the in the title and hopefully some something negative people click more when it's positive you say look bonus did this thing that was great nobody cares right so like so to sell news uh has to be negative and also

the crypto right so anything that's crypto um they want to associate a negative spin on it and the third thing is um unfortunately like I look like I'm Chinese ethnicity right so one of my friends in the U.S he told me that no in the U.S they they care about three things right now inflation crypto and China and China so just because you look just because I look Chinese I may you know just draw that much more attention on it so yeah it is what it is but um we've been trying really hard to keep our heads down and just just move

forward yeah here's the thing CeCe I I really love your input on um in general is because I think we're at this time in crypto and it's not just a crypto problem okay this is this is a a problem that we have on the internet today all modern societies are facing this in that it's very difficult to know what's fun and what's true like we have no truth finding mechanism and just to like because I want you to weigh on on this the state of the crypto Market it it feels like to me we almost have to in

order to understand it now we have to go back to 2022. back to um just after the last time we talked and what happened to FDX right and like so uh sambang been freed was calling a lot of things FUD at the time that turned out to be very very true and so crypto is like we're reeling from that and we don't trust anybody anymore I mean there was a big blow up last week with Ledger right and like I understand there were issues there were some problems with Ledger

um maybe maybe you think it's like uh crypto went too far with it but that that has been a beloved brand of crypto that has protected people's private keys for a long time and now I feel like it's it's somewhat tarnished at least the conversation is tarnished and so I guess what I'm saying is it feels like crypto is not trusting anybody but maybe with good reason I mean we've been lied to take us back to 2022 and um in your own words I think people want to hear it from you CZ what happened with FDX then we'll talk about

fud how we can like determine truth from flood but take us back to 2022 what what do you think happened in that whole story so to be very Frank I don't know what happened in inside FTX right so we we our business have uh are competitive in nature so I try not to pry too much in inside there um so from what I know is basically from what basically what everybody else knows is that they took customer funds and used that as to trade trying to make

money and they actually did a poor job at that and then they lost money and then to the point where they lost all the customers money pretty much so that's basically it and through throughout that whole time he was lying about it right he didn't tell the customers that he was doing this Etc so there was so it's serious um and um the situation was made worse by being how public he was how much how much time he spent in Washington DC right and how much time he spent talking to Senators he sponsor he sponsored a

third of the senators in congress in the U.S right and then um so and then he was going to be the biggest donor for Biden campaign next year um so now he's no longer um so all of that actually backfires when people discovered this guy's a fraud right so before you know everyone's loving this child he's a young entrepreneur um he's no he's well educated he's white he's American so he's got that everything every box ticked but then now he's the final his fraud and they their

trust is betrayed they be they turn around they come much harder on crypto so they missed the bad guy and now they're punishing all the remaining good guys and the bad guys together in crypto they just slot they just they're just slaughtering everybody in crypto right so um so uh it's it's bad um so and I think with the so that's that's bad that's that's just pure fraud scam like that's made of right um in crypto um Ledger was a different thing Ledger

no one has lost money on Ledger yet right so they didn't take customers money away it was just they repositioned they repositioned their product which violates their fundamental principles of people using that product we use Ledger because we want we we were told that this is a device that keeps your private key on the device it never leaves the device now suddenly there's a way to for you to leave the device I think even just having the API available breaks the trust right so now like it just increases a hacker attack surface

um that itself is not fraud it's just representation repositioning the product in a very abrupt way um I don't think that's all about that starts through this very well so as you said um we need to as an industry we shouldn't trust with the the industry is supposed to be a trustless industry so we shouldn't blindly trust people and we should we should try we should learn to risk control and we should we should deal with that ledger you know um if there's plenty of other Hardware Wallets on um on on the market people can switch if they I do believe many

people will switch uh because of the fundamental principles are not different for Ledger if people wanted to use an online uh backed up wallet then they would use an online backed up wallet you don't need a hardware anymore so I think they mixed up that positioning um a bit but overall though um the industry is early in early in in such early Industries there's always fraud there's always bad players there's always failures um and over time the industry will work will sort of accumulate around a few large successful players but then that's

this that's centralization today I think minus is too large finance.com the centralized exchange is too large so I actually want to invest more in D5 projects and make them grow I think the future is D5 and they're more there are there will be more decentralized but at the same time even if you look at D5 unit is what takes 70 of trading volume in D5 right so um so their natural Network effects there but we still want to diversify and so as an industry we we which is better

to have multiple players um and uh at a roughly equal sizes more competition more Geographic uh distribution so all of those will be will be better and the more choices users have um the more competition they are the stronger players will emerge eventually so I think that's got to happen well it is happening but in the process it's never smooth there's always it's always going to be issues speaking back to the um the kind of the Zeitgeist that was around crypto in 2022 uh the bear Market

didn't really come fully uh embedded into the into the market until FTX came and it was really FTX was like this climax this culmination of a much smaller series of liquidations right first we had Tara Luna and then that was like a for a 40 billion dollars so nothing to scoff at but then uh but people were worried about Tara Luna for a long time prior to that and so it wasn't totally off the table before Tara Luna collapsed and then uh ethereal's Capital was liquidated and that was a

big surprise and shock to everyone and much bigger and like they were super systemic right uh and then fast forward you have FTX go under and no one saw that coming and we saw these dominoes get bigger and bigger and bigger and then it then it came to Genesis and and grayscale and in dcg and that contagion spread into uh into Gemini and so I think like why perhaps there's so much fun going around is people saw this this crescendoing dominoes getting bigger and bigger and bigger which puts uh binance

in the conversation as in like we didn't know we didn't see three years Capital coming we didn't see FTX coming wow now it's all the way at dcg uh anything is on the table look it even got to the uh to the crypto banks in in the tradify world in America and so I think this like helps us understand why there's so much fun is like oh anything could be on the table and one of the worries that I think people have is like it's actually kind of hard to see inside of the black box of binance like we we could in this agenda like we could have added like the

last three bits of fun that have come out about binance right like co-mingling of funds regulatory fund like we don't know which one which one to talk about and all of them is like addressing all of them is kind of pointless but it's it is that that black box nature of binance and so I'm wondering if you could like reflect on what lessons have you as the leader of binance learned in this last year or so understanding that like there is this very like rock and a hard place that all of this crypto industry is in like what strategies uh have developed as a result of just all everything that we've learned in the last year uh yeah I

think there's quite a few different things there so I think well if you look at the fundamental principles right uh if we use the centralized platform like tether like binance um they we want to be as transparent as possible but there are limits so in the last year we've done proof of reserves uh we and we actually did a new mechanism of proof of reserves using zcast Knox um it was actually suggested by vitalik and we worked with their team to do that there are limitations to purchase a proof of reserves uh the limitations to everything so and

um as a private company we also need to make sure our privacy is protected right so if we publish all of our wallet addresses that we use um and you will be you'll be very clear which vendors we use and those vendors maybe maybe attacked by hackers um our SMS providers which has been attacked by hackers before our email providers which has been attacked by hackers before so they are privacy security and other consider and competitive considerations we we we're not a public company we may not want to

open our books so that our competitor knows exactly how much we spend on HR exactly how much we spend on security how much we spend on marketing and then so there are considerations there so business businesses are not complete transparent boxes right so they so they will and tether right so which bank do they use and you know four four five years ago every time they they release which banks they use that bank gets shut down right so um they are they are real operational considerations

um I'm not saying that I do think that Tesla is too much of a black box as a you know as an outsider so um there are those considerations and then there are this flood that that comes in and then there's what do the users believe right how do we find how do we find truth so fundamentally it's risk management um if you if you're using a new exchange platform um don't put oil money on one platform um you know and don't put oil money in one D5 project um so that's risk management don't put

oil money on in one wallet um so this diversification and that's learning about different the projects you interact with learning about the platforms you use learn about The Ledger Technologies understanding those Concepts um education I think is the best uh is the best is the best thing and then um they are fraud which are very hard to differentiate you know FTX we didn't see that coming three uh Luna we could have seen that come in to be honest the design was flawed um you can't meet Luna to uh to to try to push back the UST

that doesn't work minting doesn't increase value seems so obvious now that seems obvious now but you know some people actually did point that out but nobody listed one very few guys listened um so um now we're learning that lesson um three arrows was was a mismanagement of funds they lost a bit of money on Luna and then they went a bit crazy and or they went very aggressive they lost more money over time and then three arrows probably brought down Voyager and Genesis um because those were they moved a lot of money to them it was a very

convoluted web of loans borrowing going on I actually don't know the full story I've seen bits and pieces of it and then you know there was Genesis and then even Gemini is somehow involving there um and then FTX happened which really exaggerated all of those things uh all of those things so the industry does have systematic risk right so um in this last four years the cycle this defy cycle there's a lot of boring there's a lot of loans there's a lot of high yield apy um all of those are high risk so if you

want High returns you're gonna deal with high risk so um and also we people should learn to judge businesses for what they are right so they are businesses that are very simple that make money tether is one of them and they hold a large amount of reserves and they just make money on interest rate that's billions of dollars um Finance we run a slightly more heavier business we but we just our business model is very simple people trade we charge commissions people can people can get a feel how many users we have uh just by the amount of fun that

we get just by the amount of news articles that cover us Etc so people can get a sense and we run up we run a simple profitable business model and we don't need to do that and we also don't have loans right we even put out our tweet saying whoever whoever can can prove that we actually have any meaningful amount of loans from anybody can claim a fifteen thousand dollars no one came forward it was actually posted by by a friend of mine uh the founder of beef Fury uh George um and no he's a friend of mine but he's he's very independent from us we don't

have any business ships so you know we have we have done our part to be transparent but the businesses have limitations on how transparent we need can or will be um there is always a level of risk with any product you use with any platform you use and with any contract uh even using a bank right we've seen Banks fail um and and actually we now know many of them fail um so um yeah so I think it's really the fundamental risk management and reability to research and not get simple

mining just read one article believe everything in that article both good and bad all of those things needs to come into play but um we don't teach our kids in school about this right so we don't like those two students are young young kids are taught in school to believe what they read and that is not good we need to teach more about critical thinking uh challenging challenging everything so we need to we need to drill those skills into young Generations but I think you know us the technology of providing more

information more access to decentralization I think all of those things are coming are coming together yeah I think that's a really good thought and I hope listeners take away from this that um I mean risk management is the is the key thing you have to do in crypto and if there's one thing crypto has taught me through everything all the Cycles is is the importance of risk management and that's a balance right so you know you could go as far on one side of the spectrum as don't trust anybody right

um and I don't think that's right I mean but you should be on the side of the Spectrum which is which is you don't trust anybody fully and I think that's like the best place to be and uh it's certainly a Learning lesson for many in the 2021 to 2022 cycle we have a lot of trust I think in this industry uh to actually bring back and repair so I'm glad to hear you talk about proof of reserves and defy and some added transparency um and I also recognize that there are issues for centralized exchange even in

just getting bank accounts I mean like bankless has been kicked out of bank accounts how ironic is that right if it's just like it's it's um it's a it's a challenge all around one thing I would Point people to is that this has kind of been most of my Benchmark for things is is Lindy effect how long has The Entity or the project been operating without like fail I think that's important you'll you'll notice the block files of the world and the Celsius of the world and the ftx's of the world well they

sort of formed in like the 2018 time period of a very small Lindy effect when you compare them to the kind of the Krakens and the in the in in the coin bases and maybe even the finances who've been through a few Cycles without uh taking all the funds but let's leave 2022 in the past shall we CZ let's talk about 2023 right now what is up with crypto right now like what is the what is the mood that you're feeling it's a mixed mood right now it's an interesting mood right now I think so

um from my experience uh from I joined like I got into crypto from 2013 right so that was one bull market um that year um so it went from 100 to a thousand dollars and then you know there's a one year of drop in 2014 and then 2015 we started to recover and so it's one year sharp drop and the one year recovery and then while two years of all-time highs so that's 2016 2017 2017 21 000 um That Was Then everyone's rushing at the 2013 was like a Bitcoin cycle

everyone's like well what was this new thing about Bitcoin 2007 he was an Ico year so ethereum erc20 tokens anyone can issue a token a white paper you know a fundraising um and then so and then you know 2018 happened crash and then 2019 was paying for recovery and then um 2020 20 21 are again the sort of all-time high years again and you know that was D5 nfts gamify metaverse all of this stuff and

all of this stuff are still quite new but a lot of money put in and then 2022 you know um there's three arrows there's Luna uh there's FTX so it was Crusher so I think now even even if we look at the price chart we're kind of recovering so now it's kind of a recovering mood and people are still very cautious it's not like fomo yet but now there's like meme coins which I don't really afford which I don't really fully understand um but that's also at this stage is unclear in one or two years what's the

next drivers that would cause explosive growth right um uh is that is it I don't think I think I think it might be something new right I think nfts D5 they'll continue to grow but those those were inventions of the last cycle um they will continue to grow um and they will be they may actually be more realistic realistic use cases Etc but from the the from the from the angle what's going to drive the next one is I think the the mood is everyone's looking for that right now we don't we're not sure and this is why and when we're not

sure this I think this is probably why a lot of people part into meme coin and they couldn't figure out what exactly is the next one meme coin sounds fun and but it shows that they are funds uh that are ready to be deployed right so people people want to buy stuff and they look at meme points they Pile in so that's my read um uh so if we are at uh I believe we're at an interesting inflection point um again I could be I could be very wrong um hopefully we are at a we're past the bottom of the of the bear market and hopefully we are in the start

of a bull market but again this is not Financial advice this is just a feel a mood thing um but you can I could very well be wrong yeah one thing that we've discussed on Bank list is that crypto markets tend to go in Cycles but is that always going to be true is it so definitive definitively true that we get another cycle absolutely not right so there's nothing says we have to get another cycle um history uh the history pattern is quite clear if you look at it but you

know all ones were white until you saw a black one so um and so history doesn't predict the future and um we can't we can't just say because previously there was fairly distinct four-year Cycles that's that's gonna be a new one so I think we got to take uh take that into into consideration um maybe it might not and so the way I usually uh at what the way I would position businesses are we should be prepared for a bull run so we just gotta make sure like our systems can handle another 10 20 30 x volume

um but we should also be prepared financially for bear for for another 90 crash right so we gotta have the we gotta have the stamina to last so that's how that's how we would run a business that's how binance is structured today um so we can we can survive on both sides for people um I would usually recommend similar um similar situations and first um so um yeah I mean uh everybody is in a different situation so it's very hard to give advice to individuals by business for that's how that's how I usually structure things

there's this that this famous quote from that one Brazilian race car driver um you can't overtake 15 cars on in sunny weather but you can when it's raining um the idea is that in a bear Market it's easier to progress you can you can pass people now in binance is already like number one in in global volume and so there's not really anyone left to pass but there's a lot left to grow the pie in the world of bear market and crypto and so I'm wondering what is what's Finance the strategy in the bear Market to pass 15 cars during rainy weather

um actually in in the bear Market um I suppose that driver said if you can just drive normally if you're just not scared and like you know going to the ditch then that's so in Bear Market is basically about survival right so about stability uh survivals uh Etc um so in in a rainy day you don't you don't drive as fast as as you can and you you want you want to you want to you want to make sure that you stay on the road so I think that's basically our strategy it wasn't it wasn't that it

wasn't that you know fancy um uh when other when others were failing we just have steady we started secure there was a massive um uh uh Bank Run on us people withdraw like 14 billion dollars within a week no there was basically no issues uh other than one Bank didn't open for like six hours um that was a bank issue and then crypto was there was Zero issues we actually told our team make sure there's zero issues right so um yeah so like so we had so uh it was

that was the best proof that you know every coin is about back to margin one so we were tested so this back still it comes back to the to the Lindy effect right so the more you tested the the the the the more the more secure it could be and um uh doing bear markets there are more consolidations um and even we're still seeing that today right if you look at the Canadian creative crypto Market there's more consolidations for for the players just merged and for the local exchanges just merged um so uh and uh we didn't really intend to overtake 15 cars we just said look

let's let's find a path that we can we can drive and stay on the road um that's all we did really yeah I um I think we're at this interesting place in crypto where um we we see lots of opportunities ahead but we haven't quite painted that vision for the world you talked about the big thing in 2021 and 2022 and it was very clearly nfts and defy and then you were talking CZ about not knowing what the next big thing would be you know obviously D5 and nft would continue they very likely have another a large adoption cycle is there