And some businesses have run afoul of regulators. BitMex, once the world’s largest crypto-derivatives exchange, is a cautionary tale.
In August, BitMex paid $100 million to settle cases with the CFTC and Financial Crimes Enforcement Network over claims that it allowed illegal derivatives trades and violated anti-money laundering laws. The firm didn’t admit or deny the allegations. Founders Arthur Hayes, Samuel Reed and Ben Delo are awaiting trial after entering not guilty pleas in a separate Justice Department case that accuses them of violating the Bank Secrecy Act.
The Bloomberg Billionaires Index estimated Binance’s 2021 revenue using its U.S. dollar-denominated spot and derivatives exchange volumes as published by industry researchers Coingecko and Nomics, and its advertised trading fees. The calculation doesn’t include the firm’s other revenue sources, such as margin lending, technology, consulting and NFTs. It’s valued using the enterprise value-to-sales multiple of publicly traded peers. It assumes Zhao owns 90% of the firm, based on his public statements and regulatory filings in jurisdictions where that information is required to be disclosed.
Binance’s revenue is realized across hundreds of crypto tokens, which the firm doesn’t convert to traditional currencies, Zhao told Bloomberg during the November interview.
“We just hold them,” he said. “If you calculate the number today, it’s one number, and 5 minutes later it’s a different number because every price is changing.”
Zhao, a Canadian citizen, was born in China’s Jiangsu province. His father, a university professor, was exiled to the countryside during the Cultural Revolution and, when CZ was 12, moved the family to Vancouver.
Exposed to technology at a young age, Zhao later studied computer science and eventually landed finance jobs in Tokyo and New York, including a four-year stint at Bloomberg LP, the parent of Bloomberg News.
His road to crypto riches began in Shanghai in 2013 during a friendly poker game with Bobby Lee, then CEO of BTC China, and investor Ron Cao, who both encouraged him to put 10% of his net worth into Bitcoin.
After spending some time studying it, he took the plunge and ended up selling his apartment for Bitcoin. In 2017, he founded Binance (a portmanteau of binary and finance) and it quickly blossomed into a crypto powerhouse. Zhao even got the company’s logo tattooed on his arm.
Binance has become the top destination for trading “alternative coins”—cryptocurrencies that are less liquid than more established tokens such as Bitcoin and Ethereum and have become some of the most speculative corners of the market. The firm offers trading in more than 350 coins on its international exchange, more than double of what’s offered by Coinbase, according to Coingecko.
Binance succeeded in creating “user stickiness,” in part by allowing clients to use Binance Coin to reduce trading fees, said Tim Swanson, head of market intelligence at Clearmatics, a London-based blockchain firm.
“They don’t even have to be the first to list a coin anymore for liquidity to aggregate there,” Swanson said of Binance.
Zhao’s firm is also the largest provider of derivatives trading by volume, letting users speculate on crypto with even more risk and potential reward.
Initially, Binance allowed clients to open accounts with nothing more than an email address. It focused on crypto-to-crypto transactions, limiting its interactions with traditional banks and their regulators. In August, the company announced that all new users must verify their identity, and existing users who haven’t will be limited to withdrawals.