What would happen if the world’s largest cryptocurrency company suddenly collapsed?
It’s a question the industry is asking about Binance, The Wall Street Journal reported Tuesday (Sept. 26), as that company faces legal battles with regulators and a decline in trading volume.
The report notes that one institutional trader told the newspaper his company has held “fire drills” to withdraw its assets from Binance quickly in the event of a meltdown.
According to the WSJ, the industry believes other companies would fill the void left by Binance in the long-term. But in the short term, its downfall would cause market liquidity to vanish and lead crypto prices to plummet.
“You just can’t quantify what would happen to the industry if Binance disappeared, given it has been responsible for fostering a huge amount of innovation and growth,” said Anthony Georgiades, a general partner at Innovating Capital.
As the report notes, more than a dozen senior executives at Binance have departed in recent months, with the company laying off at least 1,500 workers this year to lower costs.
The company’s dominance has faded too, the WSJ adds: Binance now handles around half of all crypto trades when coins are directly bought and sold, compared to roughly 70% at the start of the year, according to data provider Kaiko.
“As a fast-growing company in a nascent, complex industry, Binance’s evolution has not been free of mistakes,” a company spokesperson told PYMNTS.
“To ensure the sustainability of the entire crypto/web3 ecosystem, we have worked tirelessly not just to learn the lessons of the past, but also to continue to invest in the teams and systems that ensure user protection. We have made massive investments in compliance talent, processes, and technology and continue to focus on building industry-leading global compliance and law enforcement assistance programs.”
The WSJ also includes an internal memo from Yi He, Binance’s co-founder and chief marketing officer, pledging to staff to help get past the company’s troubles.
“Every battle is a do-or-die situation, and the only thing that can defeat us is ourselves,” she wrote in the message seen by the WSJ. “We have won countless times, and we need to win this time as well.”
As PYMNTS wrote last month, Binance was riding high at the end of last year, with crypto markets booking and the collapse of its largest rival, FTX, leaving it alone at the top of the digital asset sector.
“[F]or now, all I’ll say is: well played; you won,” tweeted FTX Co-founder Sam Bankman-Fried Nov. 10, 2022, just before his company filed for bankruptcy.
Nearly a year later, Binance is facing legal action by the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The Department of Justice is also reportedly investigating the company.
As PYMNTS wrote, Binance founder Changpeng Zhao has repeatedly dismissed his firm’s ongoing legal woes as “FUD,” or fear, uncertainty and doubt.
“For an industry whose early and rapid growth was aided by a haze of regulatory uncertainty, crypto’s future — particularly within the U.S. — remains unclear as the newness wears off,” that report said.
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