What is Binance and what CZ’s pardon could mean for US crypto investors

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Changpeng Zhao, one of the richest and most influential figures in the cryptocurrency industry, is back in the spotlight this week after get a pardon by President Donald Trump — a reprieve that revives concerns that those with deep pockets have managed to talk their way out of trouble under Trump 2.0.

It’s hard to overstate how much Zhao, nicknamed “CZ,” has shaped the crypto industry since he launched Binance in 2017 and built it into the world’s largest digital asset trading platform.

Simply put: if you want to withdraw, say, $100 from your bank account and use it to buy or sell cryptocurrencies virtually anywhere in the world, Binance makes this process easy and charges a small commission on each transaction. It also offers more complex financial services such as margin trading and “staking,” a way for investors to earn passive returns on their cryptocurrency holdings.

Not only is Binance by far the largest cryptocurrency exchange in the world, as measured by both the number of users (280 million worldwide) and trading volume (over $217 billion per day), but it boasts 40% market share among centralized crypto exchanges.

But Binance has not always followed rules governing the sale of financial services in various jurisdictions, including the United States, which effectively banned the global version of the platform in 2019. (In response, Binance launched a more limited service, Binance.US, although in practice, many users at U.S. borders have found ways to circumvent the ban, according to media reports and the Justice Department.)

US federal prosecutors said in a 2023 report that Binance had become a hub for bad actorsenabling transactions related to child sexual abuse, narcotics, terrorist financing and money laundering. Binance also lacked protocols – standard for financial services companies – for reporting transactions with money laundering risks, according to the Justice Department, and employees were well aware that such monitoring would invite criminals onto the platform. A compliance staff member wrote, according to court documents: “We need a banner ‘it’s too hard to wash drug money these days – come to Binance, we’ve got some cake for you.’”

The company and Zhao pleaded guilty in the United States to money laundering violations. As part of a deal with the government, Zhao resigned as CEO, paid a $50 million fine and served a four-month sentence in federal prison. Zhao still owns around 90% of the company, giving him an estimated net worth of more than 80 billion dollarsaccording to Forbes.

Zhao remains synonymous with Binance and he has retained his industry influence even after his incarceration. On Friday, Zhao, a Canadian national of Chinese descent who now lives in the United Arab Emirates, reflected on his recent ups and downs: declaring: “My official record was tarnished a little, but my reputation remained strong. No one, not a single person, stopped doing business with me.”

For years, crypto in the United States was a largely theoretical project — a parallel financial system run by a community of extremely online pioneers, who believed the future of money lay in computer networks beyond the control of governments or central banks.

But in 16 years, crypto has become a $3.5 trillion industry with growing exposure to traditional finance, in part because of Trump’s evolution from skeptic to true crypto mogul. Just this week, Federal Reserve Governor Christopher Waller said: crypto assets ‘no longer on the fringes’ and “are increasingly integrated into the fabric of payment and financial systems” – a stunning recognition for an industry that nearly imploded just three years ago with the collapse of FTX, once a high-flying competitor to Sam Bankman-Fried at Binance.

Institutional interest in crypto has increased with the introduction of Bitcoin ETFs, and Congress recently passed an industry-endorsed regulatory bill that supporters hope will increase its adoption. There is still a long way to go, however, as most Americans (63%) have little to no confidence in crypto as a safe investment. according to Pew Research.

Crypto supporters also welcomed Trump’s re-election: the industry has become the largest corporate donor in the 2024 general election – and Trump immediately embraced crypto.

Trump took to crypto with the zeal of the converted, promising to make the United States the “crypto capital of the world,” and even embracing fringe elements who made many defenders uncomfortable — like launching its own memecoin, a kind of souvenir token closely associated with scams, pardoning the notorious founder of the Silk Road criminal market, and calling for the creation of a national strategic reserve of Bitcoin, which would enrich early adopters while undermining the anti-establishment ethos of the crypto founding.

The Trump family’s vast crypto empire is perhaps the most problematic conflicts of interest of the president, which makes previous ethical debates his business interests in hotels and casinos seem downright quaint. There is virtually no cap on the amount of money that can be paid to the Trump family via crypto.

Assets and Binance

The presidential pardon granted to Zhao illustrates these ethical concerns, as Binance has direct financial ties to the Trump family’s crypto businesses.

In March, the Trump family’s World Liberty Financial launched a dollar-pegged token known as stable coin – popular assets in crypto because their value remains constant, while most other token prices are subject to volatility.

According to BloombergBinance wrote the core code to power World Liberty’s stablecoin, USD1, and promoted the coin to its 280 million users worldwide.

Shortly after the coin’s spring launch, a UAE-based company announced it would use $1 to take a $2 billion stake in Binance — using $1, a deal expected to generate millions in returns for World Liberty, which is jointly controlled by the Trumps and the family of Steve Witkoff, Trump’s Middle East dealmaker.