How a Billionaire Crypto King Built the No. 1 Exchange in Just 8 Months

Even in a cryptocurrency industry teeming with overnight success stories, Zhao Changpeng stands out.

In less than eight months, the founder of Binance has grown his company from an idea into the world’s largest digital-asset exchange by traded value. He has vaulted from obscurity to the cover of Forbes magazine, steered Binance to a $200 million profit in its second quarter of existence, and amassed a personal fortune that he claims is worth as much as $2 billion.

But after a meteoric rise that defied financial orthodoxy (Binance doesn’t have a bank account or a public address), the 41-year-old coder-turned-exchange kingpin is now facing headwinds that threaten to send him -- and a big swathe of the cryptocurrency trading complex -- back down to Earth.

Not only have the world’s virtual currencies lost more than half their value since crypto-mania peaked in January, but trading activity has slumped and hackers have stepped up attacks on cryptocurrency exchanges. Perhaps most worryingly for Binance -- which like many of its peers has been operating with little to no oversight -- regulators around the world are clamping down on the Wild West environment that enabled the venue’s breakneck growth.

Read more: A QuickTake explainer on the crypto crackdown.

Zhao abandoned his plan to build a base in Japan last month, following inquiries from the nation’s securities regulator that led to an official notice to stop operating in the country without a license. Hong Kong’s Securities and Futures Commission has also issued warnings to Binance and several of its peers in recent months, telling the exchanges to refrain from trading cryptocurrencies that qualify as securities, a person familiar with the matter said.

If any of this has shaken Zhao, he’s certainly not showing it. When news of the Japan warning emerged last week, he responded by sharing a Chinese proverb with his more than 139,000 Twitter followers: “New (often better) opportunities always emerge during times of change.” In a series of interviews with Bloomberg News over the past two months, Zhao has described regulation as a risk for Binance but said that he wants to work with authorities. He also made it clear that he’s as optimistic as he’s ever been about cryptocurrencies.

“I’m convinced 100 percent that crypto is the future,” said Zhao, who is the single largest shareholder in Binance and makes all the company’s key decisions. “I just know it will happen.”

Not everyone is so sanguine.

“It’s a regulatory minefield out there right now,” said Thomas Glucksmann, head of Asia-Pacific business development at Hong Kong-based crypto exchange Gatecoin Ltd. “Less than a handful of jurisdictions are welcoming crypto businesses and even fewer have very clear rules and guidelines for crypto exchanges.”

Binance, whose online platform allows users from almost anywhere in the world to bet on the direction of hundreds of cryptocurrency trading pairs, has several of the attributes that regulators worry about most.

For starters, the exchange’s “know-your-customer” policies are some of the industry’s least rigorous. Users need only an email address to open Binance trading accounts with daily withdrawal limits equivalent to two Bitcoins ($15,782), providing a level of anonymity that makes it difficult to deter everything from money laundering to market manipulation.

Binance’s support of initial coin offerings, which fund blockchain startups, is another source of concern. Many of the more than 100 coins listed on the exchange have security-like characteristics, but lack the disclosure requirements and investor protections that one would expect to find on a regulated venue like the New York Stock Exchange. One of the most-traded coins on Binance’s platform is Tether, whose creator has been subpoenaed by the U.S. Commodity Futures Trading Commission amid questions over the veracity of claims that the token is fully backed by dollars.

Read more: Why Crypto Traders Are So Worried About Tether

Binance’s marketing tactics have also raised eyebrows. Some of its most popular promotions have included a Lamborghini giveaway and a commission-sharing referral program that Lex Sokolin, a partner at Autonomous Research LLP in London, says may in effect be turning Binance users into unlicensed securities brokers.

“Binance lacks regulation and transparency,’’ said David Shin, president of the Singapore-based Asia Fintech Society. “It’s like a van stopped in front of an office building selling coffee while the legit coffee shops on the street suffer.’’