Fireside Chat with Changpeng Zhao, CEO of Binance and Mike Novogratz CEO of Galaxy at ADFW 2022

foreign [Music] currencies sorry well welcome everybody um talk about cbdc it's great to be here in Abu Dhabi but what's the future of money is CZ is kind of the the king of crypto these days and uh no no we're not a king and it's the first time I've actually met him in person I met him a few years ago on Zoom but I've watched him in awe build one of the great companies in the space so we're gonna have a pretty simple conversation uh the big elephant in the room is what the heck's happening in crypto we had you know one of the big competitors go up in flames uh and you know I I teased CeCe I said you threw a cigarette on a house that we thought was made of bricks and it turned to be made out of kerosene um and so in the space we've had a real breakdown in trust which is ironic because crypto was set up to to go after that issue and so Susie lasted the first question what are you going to do as binance to assure people that your exchange is safe and then second what does the whole crypto Community need to do to start rebuilding Trust sure um well uh Mike thanks for the question and uh it's great to be here with all of you guys and um so I think given what happened in the last week or so first of all I'm not a smoker I don't store cigarettes and uh um and it's just not very good for the industry it's not good for anybody a lot of consuming investors are hurt um the confidence in the industry shaken and going forward we're going to face a lot more challenges Regulators are going to scrutinize this industry a lot more um and but that's actually not might not be a bad thing in order to rebuild confidence or um trust as you mentioned we are supposed to be in a trustless industry where the technology is supposed to um does remove the dependency on trust but today the industry is still so early that most users still use centralized platforms because most people are still more comfortable with a username and a password so as a finance.com as a centralized was one of the largest Central centralized platforms we need to do a number of things I think for the industry players we need to be more transparent so anything that can improve transparency proof of reserves uh disclosing a hard wallet and cold wallet addresses be more transparent with our processes stronger governance so I think there's a transparency aspect of it um there are technologies that will help us to do that like proof of reserves workout trees Etc um there's regulations working closely with Regulators working closely with Auditors um and so that's why I asked about one aspect of it um there is a um for the consumers there's a very strong education piece to it we need to educate people on financial literacy on how to not Chase super high yields not be able to differentiate what's a good behavior or what's a bad behavior so um they so there's quite a lot of stuff that we need to do but yes some of them will rely on technology regulations and also education that's probably a lot more yeah right it it makes sense that in the centralized companies that deal with crypto the regulation should probably look similar to the regulation in centralized you know uh trade fly companies uh and you're right it's transparency transparency and transparency what's been frustrating in the U.S is it's been very difficult to get The Regulators in the U.S uh to allow companies to become public to to set clear rules and so you know you're in this mixed Zone but that has to happen quick I actually don't think we've seen the worst of it yet I think we might have seen the worst of it in price uh if you had a cell you probably have sold but not in terms of the Damage Done to other key players in the industry and I think it's going to take a few weeks if not months for the hedge funds other broker dealers other weaker players to to actually show their cards on on how much damage it is done what does the industry do how do we kind of grind through the next few months collectively is there anything that you know players can do to support the broader industry because there's no there's no lender of Last Resort the Central Bank yeah yeah so I think there's there's some really interesting topics there um the first of all though I think the industry we can copy from traditional Financial worlds uh to borrow the regulations here um but there are some small differences which are subtle but very important in traditional Industries it's very complex it's almost 100 of banks run of fractional reserves so people when when you read the Bloomberg Bloomberg article when they talk about reserves they look at the total US dollar value for the reserves and whether that covers your asset that's a wrong way to do it you don't look at a total US dollar value you look at you just got a 100 reserved for each asset that your users hold with you you don't convert you don't you don't you don't you don't look at total US dollar value so traditional Banks run on fractional reserves uh in crypto exchanges should never do that so that's something that we don't want to borrow from traditional Finance um Etc so um I think we want to borrow quite a lot of the uh how uh transparency audit aspect of it kyc AML Etc um regulations need to be adapted for this industry today two two many Regulators are still of too much of the stratified mindset they actually need to get more of a crypto mindset so um I think communication education both ways is very important um speaking of you you mentioned U.S regulations U.

S is actually one of the most advanced support for crypto exchanges in terms of banking banking services in the US there's an ACH protocol uses users authorized once the exchanges can deduct money from the user's bank accounts every month automatically this actually caused some problems in the case of FTX even after when they're down their systems were trying to take money from users Banks through the ACH protocol but the level of integration is actually very very good in the US whereas in most other parts of the world we're still trying to play catch-up on that front you have is more limited in product offerings like Futures earned products Etc but at the same time if we look at U.S one of the most well regulated markets in the world made of happen made of 10 times bigger than FTX right so um how so that shows like regulation doesn't prevent uh scammers or frosters so it just reduces it so we can borrow from it but we we can't just say look regulation is going to fix all of this it will reduce it it's important but we have we got to have the right right expectations um and also lastly you mentioned that as an industry players what do we do um we have a number of initiatives uh that were that we're doing in addition to us just being more transparent as a single um uh business uh we're trying to do two at least two things we're forming the uh industry uh Recovery Fund well actually I got a lot of interest from over the last couple of days for people to that want to contribute and also for people who need help so uh over the next couple weeks or so we'll try to hash everything out and try to push that out so we want to we want the strong industry players today to protect other good industry players that might just be heard short term um so um that's not to say we can save everybody um if if a project is mismanaged on multiple fronts then we won't be able to help them anyway um the other thing where um the other thing we're trying to do is uh we want to form a global industry Association for industry players exchanges wallets blockchain developers Etc when we talk to multiple Regulators all around the world the cost the consistent feedback we get is there's no common voice for the industry they talk to 10 different players they all say different things um and they all act differently they all do things differently so I think having a come and then the industry players we're going to talk to like you know 200 Regulators all around the world um having an association that establishes some best practices is actually helpful on both sides so that's something else we're doing this is something that we were planning like even a couple a few months back but now given what's happened we want to accelerate this and sort of do this so I think the industry got to come together um become Tighter and become better so short term there's a lot of pain long term is actually causing us to accelerate many of the efforts we're doing to make this industry healthier yeah just think I want to re-highlight this idea that exchanges should it be fractional Reserve Banks right if you I deposit my money on an exchange it's my money yeah and if you read the contract at FDX or the contract any exchanges they didn't really have the right to take that and lend it to their sister company uh that was sociopathic fraudulent Behavior Uh and you know cost all of us confidence uh and so you'll say loud and clear binance has a dollar for every dollar uh good to know good to know so um that's a new well there's an old technology called Merkel trees [Music] um it basically says look uh for for your account balance you generate a hash and then you can combine hashes up into the tree onto one hash um there's a way to to to there's a way to verify that your hash is included in the root hash and this way you know that the total number is if your account balance is included in a total number and there's a way to verify that technically so the technology has been there I've done the in 2014 for an exchange back then the industry somehow stopped doing this so now we bring this back so now you can once we implement it um I think it will take another week or so um you every user on binance will be able to verify that that price is there actually a couple other exchanges have been doing this but we want to make this more of an industry-wide thing yeah so let me pivot the the conversation a little bit you chose to relocate your Global headquarters here to the Emirates uh why and how's that experience been so yeah this is this is the uh we have the largest team in the UAE globally so we have about 600 people in UAE and um actually yesterday uh we were granted the custody license and also the um uh as um the um what do you call it um fund management license sorry I wasn't sure if the right right terminology so we got granted two licenses yesterday um here from Abu Dhabi so uh everything uh everything here moves faster and they're very strict but they're very uh they Embrace Innovation they understand that you know as much as this place produces oil they cannot we cannot rely on oil forever um and you got to build new Industries and what's the best new industry to build is the fintech industry and if you talk about fintech a blockchain is the technology that will power fintech in the future so I think the leadership here is extremely aware and extremely smart about the strategies and also everything is very efficient here so doing things here are just faster than most in most other countries so I just gave you the example of uh you know if if your passport is expired um you go to the airport here if you if you're a UI citizen they say wait for 10 minutes and they give you a new passport whereas in most other countries they'll send you back home and you have to spend another month or two weeks to get your new passport so everything happens faster here so it's a great place to be in yeah and your wife and kids they like it yeah I'll have to like it yeah yeah good to know yeah um let me ask you another question you were you were born in Canada you know modest roots and now you're kind of a global Superstar with seven million Twitter followers uh what's that like uh it's a bit surreal to be very honest um I you know I was a programmer to begin with so I still think of myself as a tech geek kind of guy um so um having followers and stuff like that it's it's a bit surreal for me um but I try to keep it you know down to earth uh just I just try to be myself I try not to let it get to my head when you look at the last you bought Bitcoin in 2014 so literally it's this meteoric rise in eight years you've built the biggest crypto company on the planet and the most profitable um talk about the biggest mistake you made I think um uh well especially given what's originally I would have said like well we probably could have moved a little bit faster or a little more aggressive but given what happened last week I think uh that might not have been a good idea so I think um prudent risk management and sort of going doing things step by step is actually more important um I think my lesson is really uh well so I got into crypto middle 2013 I started buying Bitcoin in like in reasonable sizes um beginning of 2014 and then I joined a different crypto exchange left joined a wallet company uh for a while and then I did my own technology startup for for two years before I started binance so those four years in crypto that I was not part of finance and over the last five years or so I was you know with doing binance um I think my philosophy is just do things in the most basic most simple and most effective way so just cut out all the other uh we call fancy stuff right all this fluff just cut it out just focus on building a very strong product very good service customer service customer support and make sure that your system secure your system runs well and that's pretty and also in our industry it's very for binance at least we have a third thing which I think actually helped us to rise to the top is we protect users we don't just talk about it it's like two words very simple but we make decisions at each step of the way that we protect you and the users know so this is why the users stick with us we have very loyal communities even like a year and a half ago buy networks getting regulatory warnings here and there our market share grown users didn't leave us because of that because they trust us and now a year and a half later we have 15 Global crypto exchange licenses all around the world plus the two yesterday that we just got so we're we're the most licensed entity on on the planet now and the user is still with us so I think just protecting users is really really important so um yeah yeah so for us uh it's it's very simple there's no magical Peels and we just slowly and steadily build and I think for the industry as well we kind of heard in the last week or so um well actually the last year or so but technology is now going away the strong player the strong players will actually have more opportunities to do to do more things so that's kind of how we view it yeah so the first time I met you we were on a zoom and I was asking about your business strategy and you said something like you know I don't go first I look at what someone else is having success with and then I go after that business model with with Vigor uh you know I'm a great copier I'm a great second place guy uh because we can execute better than anyone else has that stayed the philosophy in some ways uh by and large yes so um I I my meaning is not we'd ever go first we on some stuff we do go first and we try new things by by and large going first there's a very high chance of failure right so when you're innovating you're probably gonna fail 90 plus percent of the time um but when somebody when somebody else invents something and that's already trending you we got to be able to catch on so our ability is not not so much like we're smarter uh we we can predict the future we are we're super Innovative we are more the execution guys so we're very strong execution uh when something's trending then we can copy and we can execute better um we can actually more quickly lower cost uh higher capacity uh more secure on any of those matrices we got to do at least better on a few of them and if you can do that then we have the user base we have the brand we have the user trust and then so we just got to be able to execute so this happened a couple of times when D5 was all the rage BNB chance started BNB change now has the most active daily users um not the highest tvl yet but it's at the lowest fees relatively high capacity um and when nfts was was all the rage we launched an act platform it's still actually behind it's still actually second place second largest nft platform but nfts have you know dropped quite a bit in volume um but we're not the first exchange by far um but we try to execute better than everybody else it's on every little little thing we do we're more secure our match engines faster our customer support we handled 250 000 customer increase last week average pickup time was 18 seconds so you contact our customer support 18 seconds you there's somebody chatting with you so we try to do all of those things a little bit better um and that's why we're here yeah well done um a few more questions so just to kind of get the broad scope of what binance does you have a venture business where you started making Venture Investments a while ago uh with a pretty unique philosophy why don't you talk a little bit about that sure sure yeah so as we just discussed earlier uh over the last three four years um our Venture arm invested the first three years we invested about 100 projects and we invested about 130 million US Dollars roughly because the value changes all over all the time the important photo value for that 100 projects now worth about seven billion US Dollars even at today's market value so it did like about 60x something so that turned out to be really done really well over the last year we actually sped that up over the last year we invested in another like 60 70 projects um and the ticket size is a little bit bigger now so in the bear markets we actually were much more aggressive um we see there's more opportunities better opportunities but the point that you were asking before was a we just hold the coins we almost never sell um so Luna we invested three million US Dollars and Peak market value went to six 1.6 billion and then it dropped probably to about three thousand dollars now uh but we still hold it um so uh so why do we do that we I don't want our team to get into a position of we pick tops and try to sell every two years like what are we going to sell today uh if if we have that kind of mentality then everything we hold is going to be short term uh I want to hold for like 10 20 years and then I wanna so we already have projects that's done a thousand X so for we only need one project to do 200x to cover the cost of the rest so our cost is covered um even losing theoretically 1.6 billion dollars on on the book and we still hold a bag of ftt um which which was worth like a couple hundred million dollars like a week ago um and uh so but we it's okay we we were gonna sell it so that's one of the very few ones we're gonna sell and we said we're gonna sell it and by now we still hold a large portion of it and we stop selling um and even yesterday my team was like do we want to sell the rest at the market value it's like well let's let's just hang on to it because there may be investigations later let's just hang on to it so we're not selling um and uh but for the rest of the portfolio we don't want to sell just by picking top I want to hold it for 10 years there will be a few that would do a million x um and that that few will make up for the rest of the portfolio so that's kind of our philosophy so I assume when you started you were part of making those decisions on which projects to invested and not now that you've got such a big Empire and you've got a dedicated Venture team do you still get personally involved in where to put money um so uh I use I'm involved very very little so we still have a process called a investment committee I'm sure like I see where the smaller projects like I think below like three million dollars I don't get involved uh if the investment is more than three million dollars I would be invited to IC uh it will be a project whose name I've never heard of most likely um it will be like the technology I never heard of so I'm relying on like two pieces of paper like I try to ask them to condense down to like a two-pager for investment IC uh memo um and honestly I wouldn't know very much about that project so um and if a team I may ask one or two questions and then we'll have a vote but if the majority of the team says we're going to go for it I usually just yield um so I try not to make those decisions but I'm still involved in some other a slightly larger ticket size project and this is also the reason where when people come to me to pitch projects you know you're an investor you listen to pitches I don't listen to pictures because I can't make I'm not smart enough to judge whether project is good or not based on an elevator pitch on 30 seconds and I need to for me to understand a project I need to look at the white paper download the products use it follow the project team look get involved in the community that takes me like you know a month I unfortunately don't have the time to do that so pitching project to me doesn't work I won't remember them you guys all heard that no pitching yeah uh so I want to keep going through binance because I think it's fascinating the scale of the Empire and I also you know there's often a lot of what we call fud fear and certainty and doubt jealousy uh around any successful project and so let's talk now about your blockchain uh you know the the the BSC chain uh is now the third largest blockchain depending on how you count it um it's like second or third or fourth depending on different metrics got it um this the naysayers always said well it's just easy he owns all the no's uh and that's not true so why don't you explain yeah yeah thank you for thank you for asking that question and give me the chance to clarify that so there's a misconception that you know uh BNB champ the BMB smart chant is the all the validators are owned by us or indirectly by us we actually specifically uh specifically uh try to help famous projects teams in the in the ecosystem to run different nodes so etherscan runs one of the BMP chat nodes and most of them can be attributed to very like nameable projects in the space I don't have I don't have a list of all the names in my in my head um I actually don't pay a lot of attention to that binance runs two nodes out of the 27 28 now it's going to grow to about 41. so um we yeah we just run two nodes um and so that's that's all it is and we're very happy with that we give grants to developers on to write code for it there's no equity involved we don't like it's a blockchain there's nobody owns it um and the Developers I I talked to one of the a couple of the sort of senior developers once in a while and now they they're talking a language I hardly even understand um yeah so um I think metallic is very good in this he's still very technical uh I used to be a programmer but I think now I'm a terrible terrible programmer so um they they work on stuff on their own uh sometimes once in a while they ask me like hey um CeCe what do you think like is um is a privacy the future or is uh uh is other things the future I'm like just at those levels I'll say hey higher capacity is better um so um just very very I only get involved with very very like you know they chat with me like once a quarter or something like that and I only chat with one or two of them um and that's it that's that's our influence but for us I think it's very important for us to be this uh to be the contributor especially financially uh resource wise also liquidity wise which we just contributed to the BNB ecosystem and for me uh BNB is my baby but it's grown it's grown up it's it's already out there it's in college it's already doing it's doing its own thing it probably has his own girlfriend and boyfriends or whatever um so we just we're just we're just helping yeah all right we're getting towards the end so one of the things that was very disconcerting with the FTX exchange is that if you went to the Bahamas you'd walk 15 feet away from where fdx's office were in alameda's offices were there and they were giant market makers on the same exchange and so now that's got everybody worried about marketing making on your exchange you do Market make some on binance can you talk a little bit about the market makers from your company on the F on the binance exchange sure that's also a great question to to clarify so on binance WE rely there are many market makers on our platform uh and um uh most of the institutions do Market making they put the orders up for people for retail guys to trade against and most of them don't have relationships with us we do have one market maker that that I'm a shareholder of um it's actually registered well now we actually registering Bahrain licensing by rain um and um we look at the books uh we make sure that that license that entity does not make money so it's there to provide liquidity we also try to make sure it does not lose money so liquidity providers should not lose money so if it's a very simple algorithm it's like the guys will understand D5 right so you place orders on the books both sells and buys if you lose money you try to spread it out a bit so you're now you're buying at this this you're selling at this price by trying to buy at this price if whoever wants to trade against you that's great um if you start to make money you try to you try to narrow it so now you provide a tighter book what the if you really really type most likely you're going to lose money so uh by by just by just adjusting how tight the spread we're providing and then when we do this other other market makers come in they basically they have better Market making algorithms today 90 plus percent of the 95 percent of the market maker volumes are other market makers uh this one entity we skipped uh just because if a uh actually Alameda used to make do a lot of Market making on our platform um they have been reducing over time but they still use our liquidity so they have to put orders on like when they have to put orders on on our order books um once a when a large Market maker goes away uh so ours ours is the market making of The Last Resort so it's very transparent it's one company that I'm I'm a shareholder of is registered in Bahrain the books are audited we don't make money we don't lose money so that's the best way to keep it also all right so last question um you're the CEO of an awesome well-run business uh that is at the center of a giant industry you're also now an ambassador uh Cedar Statesman for an entire industry and those things are both a line and it's sometimes in Conflict how do you manage that in your head or think about it or meditate on it about allegiance to the overall industry it allegiance to to binance I think it's a it's a very it's a fairly simple mental exercise I think today um what's good for the industry is good for binance so for binance today given our size in the industry if we take market share away from a smaller competitor it may increase our you may increase our volume by one percent it's not that meaningful whereas if it can help grow the industry by 10x 100x a thousand X which I think is totally possible uh then our size grows together with that because you know our growth has been pretty much consistent with the industry so from that point of view I actually I spent a lot more time like sort of talking with uh head of States politicians Regulators trying to grow the industry so that that's actually more helpful for binance um as as far as my efforts concerned um I actually spend I don't spend that much time on the day-to-day operations of binance anymore we have a very strong team I fly around all the time I was in Indonesia yesterday and landed last night and here now so our team runs all of that there's always a somewhat conflict of interest in potentially for even even within the binance ecosystem on binance.

com WE list most we list thousands a few uh probably uh uh a lot of different blockchains right we support different points and that's on the centralized exchange BNB can list on multiple centralized exchanges that lives on binance and a bunch of other exchanges coin market cap works with many different exchanges at the same time um our wallet trust wallet uh works with different multiple blockchains as well for finance.com if there's only one blockchain there's not going to be much volume on balance on bonus.com so it's actually better to have a very diverse uh Lively ecosystem so it's important to to have a lively ecosystem do they compete yes they do compete um you know exchanges compete with changes blockchains have some competition with other blockchains wallets competes with other wallets and there we there for the banner for players in the binance ecosystem we do try to give a little bit more help both branding wise liquidity Etc but at the same time we we invest in we invest in projects on different blockchains we invest in we invested in polygon Matic we investing in almost most of the projects in the space actually so from that perspective and from that perspective overall we try to grow the industry I think the industry is still also given the industry has about a hundred a thousand X room to grow especially from where we see today um it's not a saturated Market we don't need to compete within the this one percent today we can grow 100x and everybody benefits so we actually very we actually very rarely even use the word competitor internally uh internally we use industry pair uh to say look the mindset is we're not competing with other exchanges or we're not competing with other businesses so even Little Words internally we're quite careful about it so um yeah so we hope that we we hope to grow the industry together so last I said that was last question but I got one more and I'll get you off the stage uh everyone in crypto in the decentralized revolution had a moment that they said I want to actually spend the next 10 years 15 20 years of my life working in this industry because uh part of it is I'm good at what I do and I can make money and I'm a computer guy but what was the because like why why crypto why the decentralized revolution yeah so for me this is like the second half of 2013. so I got introduced to Bitcoin in July 2013. um and the person at the time told me like he says easy you should think you should consider converting 10 of the net worth into Bitcoin uh there's a small chance it will go to zero then you lose ten percent there's a much higher chance of 10x um and then you double your net worth so like well that's pretty serious um so I look into it um and I read the white paper uh understood there was much less educational material back then um I understood the technology I was always Tech Finance so I kind of I kind of got it pretty quickly um and then um uh and then I went all in I didn't just go 10 um but um there was a six months later like in December 2013 I was like this technology worked I need to make sure there's a community so I went to a conference in Las Vegas um and that was like a Bitcoin conference with like maybe 150 people but it's the same crew that you see today vitalik was there um Matt rozek was there this is the same crew um and uh I said if this is the at that time when you read the news it's all about the sequels it's all about drug lords using Bitcoin but when you meet that that people in that conference there's a bunch of young kids uh it's a bunch of Geeks I'm like if this is a if this is a community I'm very confident so this is why early 2004 right after that conference I told my boss look either we do something in crypto or in Bitcoin industry or I'm leaving um so I left um and uh um and then in 2014 I was selling my apartment buying Bitcoin um for me the the realization was you know um I missed the internet thing because I was kind of just got out of college I wasn't able to latch onto it internet was a new technology for transferring information this is a new technology for transferring value right so comparing information to money this thing is going to have a much higher impact and I'm not like at the time I was like 35 or so um I was like like I'm not going to be I'm the next chance is going to be 20 years later I'm not gonna miss this so this is why I quit my job so I saw my apartment bought Bitcoin and started looking for a new job um and then I spent like three or four years in the crypto industry before I came back to my old job which is building building trading systems so that's kind of how I got started but for me it was very clear and this is now eight nine years ago so for me it's coming to the period where like like 10 years almost 9 to 10 years in the into the industry so um we got very lucky um built a binance build a very strong platform and also an ecosystem so going forward I'm actually gonna plan to spend more way more and more of my time on the industry and less less than my time on finance the centralized exchange yeah awesome well guys CZ thanks so much thank you so much yeah I appreciate it