The US is going after Binance. Should the industry worry?

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Hello everyone,

It’s not been a good week for the once-mighty leaders of the cryptoverse. The US government has filed a civil suit against Binance CEO Changpeng Zhao, better known as CZ; European officials arrested Terraform Labs’ disgraced CEO Do Kwon in Montenegro; and prosecutors added another charge against FTX’s Sam Bankman-Fried, this time for allegedly paying a US$40 million bribe to Chinese officials.

It’s the announcement of the civil lawsuit against Binance that has the crypto community on edge. As the largest centralized exchange, there is a growing fear that if it falls, it’s game over for most of the industry.

But let’s not get ahead of ourselves. I’ve spent the last few days talking to crypto founders and lawyers, and everyone tells me there is a lot that can still happen. So let’s get into it.

— Scott

🤿 THE DEEP DIVE

US civil suit against Binance.com: What’s the real motivation?

Image credit: Timmy Loen

Just a few weeks ago, I wrote about Binance.com’s growing dominance during the crypto winter. It was very clear when writing that story that Binance’s primary goal over the past three years has been to extend its already dominant market share using every trick in its books, from enabling trades without fees to cutting their competitors off at the knees. As a result, Binance was only one of two exchanges to exit the crypto winter better off than how it was when the downturn began.

But questions surrounding the crypto major’s success have raised concerns. An investigation into its business practices by the US Commodity Futures Trading Commission (CFTC) resulted in a civil lawsuit this week. The agency alleges, repeatedly, that Binance’s guiding principle was “profits over compliance.”

Of course, CZ responded, just about eight hours after the complaint was made public, calling it an “incomplete recitation of facts.” He promised that a complete response was in the works. We hope that includes telling us just how the CFTC got his Signal chats.

Not everyone believes what the US is selling, though. Suing crypto’s largest centralized exchange just a week after three American banks collapsed has drawn some criticism. One local entrepreneur told me he suspects that the timing of this lawsuit has more to do with optics than illegal option trading. Other executives and lawyers suspect this case may never even make it in front of a judge. You can check out the industry vibe in this week’s Deep Dive.

👀 ALL EYES ON…

What everyone’s talking about.

1️⃣ Montenegrin court ponders whether to extradite Do Kwon to South Korea or US
We mentioned in last week’s newsletter that Do Kwon, the former CEO of Terraform Labs, was arrested in Montenegro. He is wanted in the US and South Korea on criminal charges relating to the collapse of the US$40 billion UST/Luna algorithmic stablecoin project. His arrest ends months of speculation that he was hiding in the Balkan region.

⭐ TO THE STARS

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