September 16, 2021

Binance has abandoned its 'decentralised' business model

Binance has abandoned its 'decentralised' business model

Bitcoin exchange Binance is transforming itself into a licensed entity with a centralised business, facing regulatory challenges. Founder and CEO Changpeng Zhao told the South China Morning Post.

He acknowledged that the idea of a decentralised global business organisation has hampered regulatory approval in jurisdictions with clear licensing regimes.

Four years ago, when it all started, we wanted to adopt a similar model and have decentralised teams everywhere. But most of our business is one exchange. Now we have come to realise that for regulators we need to be centralised, Zhao said.

The mere fact that the company cannot specify its headquarters has already proved to be a negative signal to the supervisory agencies, he said.

Regulators usually ask us very simple questions, the answers to which sound quite amusing to them. They ask us, 'Where is your headquarters? We answer that we don't have one. This is not the best way to interact. They don't understand how to work with us and probably think we are too dodgy, explained the head of Binance.

Over the past few months, financial regulators in several countries, including the UK, the Netherlands, Italy, Poland, Japan, Thailand, Hong Kong, Singapore, South Africa and several others, have issued warnings to investors regarding the exchange's activities.

Zhao said much of this concern by the agencies had to do with the company's business model.

For a regulated exchange business, we need centralisation. We need a single legal entity with clear capitalisation tables, transparent investors, a proper board and governance, clear KYC/AML procedures , and a risk control system, the Binance founder said.

Earlier, amid a series of warnings from regulators, Zhao published an open letter outlining the exchange's plans to ensure regulatory compliance and customer protection.

As a reminder, Binance introduced mandatory user verification in August.

Jack Evans

About the author

I became a crypto asset owner in 2014, when the industry was in its infancy. Before that, I was working in the classic US and European stock markets. Since then, I have gained extensive experience in both cryptocurrency investing and day trading. I am happy to share with readers my experience with crypto exchanges, DeFi and NFT instruments. 

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