The quest for legitimacy in the United States leads Binance.com, the world’s largest cryptocurrency exchange, to pursue an initial public offering of its U.S. unit. But for a business built on secrecy – as cryptocurrency businesses typically are – things could be slow and volatile.
This month Brian Brooks, CEO of Binance.US, left the company after just three months on the job, citing “strategic differences.” Changpeng Zhao, the Chinese-Canadian billionaire owner of Binance.com, had hired Mr. Brooks, a former regulator, to help the company gain a foothold in the United States. Mr Brooks left after a failed venture capital investment he was trying to set up for Binance.US. The deal would have been the first step in a potential IPO, but some investors balked at Mr. Zhao’s control over Binance.US.
Businesses that sell digital money are trying to grow. Often started by lone programmers lugging laptops around the world, many cryptocurrency companies are restructuring themselves into more traditional entities with boards of directors and audited financial reports. Some are yearning for a bigger presence in the United States, a lucrative market where hordes of clients are already flocking to their platforms – just as prudent regulators have started to pay close attention.
In a recent speechGary Gensler, chairman of the Securities and Exchange Commission, called the space “Wild West.”
“This asset class is rife with frauds, scams and abuse in certain applications,” he said. “There is a lot of hype and spin on how crypto assets work. In many cases, investors are unable to obtain rigorous, balanced and complete information.
Coinbase’s initial public offering this spring, a San Francisco-based cryptocurrency exchange that allows customers to trade digital currencies for real currencies and vice versa, provided rivals with a blueprint – and insight into money to be made. This month, Coinbase reported a second quarter profit of $ 1.6 billion as a state-owned company.
“Fundraising and engaging potential investors is a critical part of Binance.US ‘long-term strategy,” Hazel Watts, a Binance spokesperson, said in an email. Ms Watts said the company plans to significantly dilute its ownership by attracting more outside shareholders. “The original plan was to dilute only a small part,” she said.
Mr. Zhao, who calls himself “CZ” and lives in Singapore, created Binance.US in 2019 as a first step to appease US regulators who are unwilling to let US clients trade on Binance.com. He currently owns most of Binance.com and Binance.US. Mr. Brooks joined the group in April with the mission of building a legitimate and transparent business, starting with diversifying its ownership structure through a venture capital investment in Binance.US.
A former regulator who briefly headed the Office of the Comptroller of the Currency – which oversees the nation’s largest banks – under President Donald J. Trump, Mr. Brooks was already familiar with the cryptocurrency industry, having served as a legal director of Coinbase.
Mr. Brooks made an effort to establish that Binance.com and Binance.US were separate entities despite their common ownership. Binance.US had “a truly independent relationship” from each other, he said in a May 19 statement. maintenance with Bloomberg – licensed from the Binance brand and certain technologies, but operating independently.
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“It’s a very, very different thing from them who own us, which they don’t do,” he said.
He was looking to raise at least $ 100 million from investors, according to Ray Lane, a longtime tech executive turned venture capitalist in San Francisco. Mr Lane said his company, GreatPoint Ventures, had never made an investment in cryptocurrency, but when his partner Andrew Perlman – to whom Mr Brooks had made an offer – offered to invest, Mr. Lane was ready to consider the idea. A senior SoftBank executive also considered making a personal investment in Binance.US, but decided not to, a SoftBank spokesperson said.
GreatPoint has started discussions with Mr. Brooks regarding a partial investment in Binance.US. Investors were initially reassured by Mr Brooks’ assurances that Binance.US would be managed independently from Binance.com and follow all US regulations. This could potentially include strict requirements to keep track of customer identities, report suspicious activity to federal authorities, and ensure that the platform is not being used to commit crimes.
But with U.S. authorities investigating Binance into money laundering and tax matters, according to a Bloomberg report, and Mr. Zhao’s property of Binance.US hovering around 90 percent, GreatPoint decided not to make an investment.
“We will have to make an investment decision before all of these issues are resolved,” Lane said.
Additionally, he and his partners believed the walls separating Binance.US from its parent company were fragile. “How could we feel comfortable that this is an independent company using the same technology? “
Around the time GreatPoint was considering an investment, Mr Brooks was aiming to strengthen Binance.US ‘regulatory chops. Cryptocurrency firms, which have previously had run-ins with U.S. regulators, began mounting a counteroffensive by hiring lobbyists and luring former regulators, including former SEC Chairman Jay Clayton, into their lap.
In early July, Binance.US announced that it was hiring Manuel P. Alvarez, a former general counsel for the Consumer Financial Protection Bureau who later served as California’s chief banking regulator, to be its chief administrative officer. But once GreatPoint pulled out of the talks, Mr Brooks and Mr Alvarez resigned.
Joshua Sroge, acting chief executive of Binance.US, said in a statement that the company still has plans for growth, including raising external funds and “expanding its board of directors to experienced executives, among other initiatives. consistent with those pursued by fast-growing private companies.
On the day that Mr. Brooks and Mr. Alvarez resigned, Mr. Zhaowrote in a Twitter post that Binance “was moving from reactive compliance to proactive compliance.”
Ms Watts, the spokesperson for Binance, said Binance.US still expected to complete a fundraiser “shortly,” although she declined to release the names of potential investors. As part of the new cycle, Binance.US plans to expand its board of directors – which currently has three members, Mr. Zhao, Mr. Sroge, and Binance’s chief strategy officer, Gin Chao – to between seven and nine. people.
“The composition of the board is an important factor in any fundraising decision,” Ms. Watts said. “The proposal presented to the board at the time did not reflect this,” she added, referring to the venture capital investment suggested by Mr Brooks. “CZ’s belief is that the board of directors of Binance.US should be independent and operate with good governance.”
The company is still considering an IPO, she added. “It’s just a matter of time.”