Interview with CZ: Will Binance be the savior of the Crypto market?

This article comes from WIRED, compiled by Odaily translator Katie Koo.

This article comes from

, compiled by Odaily translator Katie Koo.

The crypto market is in free fall, losing around $2 trillion in a matter of months. Bitcoin peaked at $67,000 in November 2021 and is currently hovering around $20,000. To add insult to injury, many high-profile projects collapsed, possibly due to unreliable project design and poor financial soundness.

In May, Luna plummeted, and $42 billion evaporated out of thin air. Although Terra has no cash reserves, it still maintains the UST price at around $1. Two weeks ago, Celsius, an encrypted lender investing in the Terra-Luna project, stopped all customer withdrawals due to a liquidity crisis; Singapore-based cryptocurrency hedge fund Three Arrows Capital is also in trouble, which may affect a large number of customers and investors . In less than two months, Tether's market cap has been wiped out by around $15 billion, the cryptocurrency equivalent of a bank run, as users scrambled to convert USDT into dollars.

Amid the market slump, some companies are thriving. Take Binance, the world’s largest cryptocurrency exchange, for example. While several crypto firms are laying off staff, Binance is on a hiring spree. Binance CEO Changpeng Zhao (CZ) still believes in the great value of cryptocurrencies.

Under the "doomsday crisis" in the currency circle, CZ has to consider whether Binance will play the role of the lender of last resort for cryptocurrencies - the central bank, to help repel the threat facing the entire industry. Another exchange, FTX, has already moved into action, "bailing out" struggling BlockFi firm. Binance can further strengthen its position in this volatile industry by simply choosing which companies to bail out next.

This article is an edited and condensed version of CZ's interview with WIRED.

WIRED: I want to hear your thoughts on the current crypto market. Is the current crypto market facing an existential crisis?

CZ: Cycles happen when a market has hundreds of millions of people transacting, and it's definitely not an existential crisis. Three years ago, the price of Bitcoin was between $3000 and $6000. If I knew that Bitcoin would be worth $20000, I would be very happy. The premise is that you have prepared in advance. But if you buy in 2021, you won't be so happy.WIRED: Do you think this undermines the idea that cryptocurrencies are a hedge against financial turmoil, that cryptocurrencies are a safe haven? Right now cryptocurrencies are falling in tandem with the stock market, which shouldn't be happening, right?

CZ: Cryptocurrencies have a price and they have value. These two things can be different. So, when something is trading, the market is usually overbought and oversold at highs and lows.

Personally, I do believe that cryptocurrencies are increasing in value. The number of use cases and the number of people using it, as well as its practical value have increased. But the price is not stable.

WIRED: What is the main value of Bitcoin?

CZ: For Bitcoin, the greatest value is that its supply is limited. This is because there is no central bank issuing bitcoins and the maximum number of bitcoins is fixed at 21 million units. So it should be anti-inflation. We are experiencing a very serious inflation.

Now the price has dropped a bit. There are many factors that affect the price of Bitcoin. It has a limited supply and in theory it should be anti-inflationary, but that doesn't mean the price will always go up and never go down. This is two different things.

WIRED: If I put $1,000 in Bitcoin in 2021, it could be down to $300 now. My mood will be like a roller coaster. Inflation is rising and the price of Bitcoin is falling. I understand your reasoning, but what advice would you give if I were a regular player?

CZ: Prices fluctuate due to market psychology, but the fundamentals have not changed. Just because something is anti-inflation doesn't mean it won't go down. The price of any asset is determined by market psychology. Most people who trade bitcoin are also trading stocks, so when the stock market goes down and people run out of money, they sell cryptocurrencies and the price goes down. But that doesn't change the fact that Bitcoin is still anti-inflation. Bitcoin has no inflation, but the price can still fall.WIRED: Yeah, the stock market isn't doing too well. But the situation in the crypto market was even worse, with the value of the industry falling by more than 70%, and $2 trillion was wiped out. Some projects have failed miserably, such as the demise of the stablecoin Terra. As an industry, is cryptocurrency behaving more recklessly than traditional finance? Is it an economical magnifying glass?CZ: I don't think so.

In any market, there will always be failures. Failure is a necessary condition for success.

Google's achievements are not achieved in a day, there are many failed search engines before Google. This is the process of innovation. We learn from this cycle. Therefore, the crypto industry is still growing.

WIRED: Do you think the crypto industry allows failed projects to become the center of the industry? When we talk about the crypto industry, what is the crypto industry? How would you define it?

CZ: The beauty of decentralization is that no one can define it.

Binance invested in Terra, backing the project and allowing Terra to be traded on its exchange. Last month, Terra-Luna exposed the nature of its poor design. It crashed in an instant and lost more than $40 billion in one weekend.

I think it's the industry that has weeded out programs like this. Users who participated in these projects have also followed and supported these projects, and many people have supported many failed projects. At the same time, the industry itself is also experiencing "survival in the wilderness", and the collapse of Terra-Luna will inevitably destroy the encryption industry.

WIRED: True, but Terra-Luna may have acquired a level of legitimacy that other failed projects have not. Why has it acquired this legitimacy? Is it because the exchange allows it to go live? Or is it because there are big investors backing Terra?

CZ: I don't know. We can also speculate that there may be a bigger crash than Terra that didn't happen. And this crash was somehow prevented by the crypto industry. So, can the industry work together to prevent Terra-Luna from collapsing? There is this possibility. But we didn't. It is possible that we may have unknowingly prevented a larger crash from happening.

WIRED: How did you stop it?

CZ: I don't know. You never know what disaster you've dodged. If someone had stopped 911 and the plane would not have crashed, the person who had stopped would not have known how much disaster he had prevented from happening.

WIRED: Did the Terra crash change how Binance judges listing tokens? What alarm bells does this sound for the industry?

CZ: I think we all learn from these kinds of incidents. So we will now look more closely at lending agreements, research mechanisms, risk controls, and more.

WIRED: What will happen to Terra listed on Binance Exchange? If it weren’t for the listing on Binance and other exchanges, Terra probably wouldn’t have gone all the way, and fewer people would have been affected by its plunge.

CZ: It's a chicken-and-egg question. When a token gains a large number of followers, the exchange must list it.

WIRED: I checked the requirements to list on Binance. It's not just about the number of users, it's about the quality of the team, and the business model in general. Did you find any problems in the process of reviewing the project? The Terra project has been criticized by many, and even consistently pro-crypto podcasts like Bankless voted against Terra-Luna.

CZ: Our team does a thorough review of projects, but there are always people who say bad things about projects, especially popular ones.

WIRED: In the current situation, the critics are definitely right, aren't they?

CZ: For all the failed projects, all the critics of these projects are right.

WIRED: Going back to the Terra-Luna question, what is the background check process for tokens listed on Binance now?

CZ: We use standard industry background checks. We will look at the relevant documents, and we will ask them to conduct a background check through the background check service.WIRED: Will you expand background checks for tokens listed on exchanges?

CZ: We will keep improving. But again, I don't think we can guarantee that there won't be any problems in the future. For example, no regulator can guarantee that Nasdaq is free from failed products, projects or companies. So it's not a black and white question. But we can certainly learn from it. Currently we do more analysis, especially when it comes to loan liquidity. But I don't think there is a perfect solution to avoid the problem.

As long as you are innovating, you should allow failure.WIRED: Binance is doing very well, while other exchanges are tightening their belts and laying off staff on a large scale, Binance is hiring.CZ: Yeah, we didn't spend a lot of money during the bull market. We have been through a bear market and this is at least the second cycle for Binance. We know that the price of Bitcoin can drop by 80% to 90%.So I always tell our team that we need to keep a 10-year cash reserve and that's how we operate.

Plus, we're continuing to grow. We are also very confident that the industry is still growing and the number of users is still increasing.

In another two or three years, prices may catch up to value again. But we want to be ready for those users who want to use our product.

WIRED: How do you see Binance emerging from this industry-wide crisis?

CZ: I think the most likely scenario is an acquisition, which would be good for us and anyone with cash reserves. So we're going to be making more investments, acquisitions and hiring. In the long run, this may not be such a bad thing for us. But at the same time, I think the bear market is not the most important thing, people should actually focus more on building better products. In a bull market, everyone wants to raise money, and everyone wants to do their own projects. There are many attractions. We see a bear market coming, and I think we should work hard to build our product. Then, when the next bull market arrives, we are ready to go.

WIRED: Do you think Binance and other large corporations with large cash reserves have a duty to bail out projects that pose an existential threat to the entire crypto industry? If there was a crash 10 times worse than Terra, would Binance help it through?

CZ: I'm glad you mentioned that. I think there are three points. So far, the most important thing is that the project has not received a large-scale funding bailout, but it has remained stable. Terra-Luna wiped $40 billion in one day, but the project is still there. A few other projects were also affected, but that's only a small fraction. So, even without the "bailout," the program is robust.

With regard to rescue, there are two situations. Most companies that fail are poorly managed. They made some mistakes, or their design was terrible. Why bail out such a project?

There is no point in bailing out poorly managed programs because those programs will continue to be poorly managed and have bigger problems in the future. So in theory, the bailouts are for companies that are temporarily mismanaged. We can help them get out of trouble, give them a chance to improve and develop better.

WIRED: Do you reach out to companies that are temporarily mismanaged?

CZ: That's for sure.

WIRED: Are there any projects that ask you for help?

CZ: We do get bailout requests from almost all projects that are currently under stress, even those that are not at immediate risk of liquidation but could be.

We don't have a single "bailout" mechanism where we can buy the whole product, lend them some money, make investments, and own some equity. It is also possible to buy some tokens, provide liquidity to them, or acquire them, these are all possible. But fundamentally, we look at each project on its merits. We still focus on product, user base and product team. So whether to rescue or not is not a black and white issue.

WIRED: Will you bail out cryptocurrency lending platform Celsius? It's been under pressure right now as it suspended withdrawals for all users, but maybe it's a good project.

CZ: I don't want to comment specifically on Celsius. I think their teams are having some discussions. We are negotiating with every project in the industry.

WIRED: Are you currently in communication with Celsius?

CZ: I'm not sure we're going to have a conversation, but I think there's a strong possibility.

WIRED: What projects have kept you up lately?

CZ: I usually sleep well.

WIRED: How is Tether doing now? After the Terra-Luna debacle, for a while many thought it would be the next stablecoin to disappear. It's a $78 billion project. Now its managers complain they are being attacked by speculators.

CZ: I didn't think about it. It doesn't give me sleepless nights either.

WIRED: Are you going to reach out and save it?

CZ: It depends on how robust it is.

WIRED: Is Tether currently stable?

CZ: I'm not sure. I'm not questioning, I just simply don't know. They didn't communicate with us. We don't know information about projects, teams and operators, it's a black box for us. So when projects want us to help them out, we need to do our due diligence. If you ask me "will I bail out Tesla without doing due diligence"? I don't know either.