Will Binance, which has a profit of $1 billion, attract US government supervision? The problem comes from derivatives and securities tokens

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As the world’s largest cryptocurrency exchange, Binance is undoubtedly the world’s largest cryptocurrency exchange, but it will face severe challenges from the US government in terms of derivatives and security tokens.

Abstract: Binance is the world’s largest cryptocurrency exchange without a doubt, but it will face severe challenges from the US government in terms of derivatives and security tokens. Unlike BitMEX and others, Binance has always wanted to be the “good boy” of the United States and has invested heavily in embracing supervision.

On December 4th, the founder of Binance, Changpeng Zhao, was elected as Bloomberg’s top 50 in the world. According to an interview with Bloomberg, Binance’s 2020 profit will be 8 to 1 billion U.S. dollars, and its profit in 2019 will be 570 million U.S. dollars. It may be the most profitable company in the global cryptocurrency industry. . Recently, two Chinese competitors, Huobi and OKEx, began to be trapped in the investigation storm in October, and data shows that Binance’s business has benefited from this.

The founder of Binance left China after 9.4 and became its competitive advantage. But Binance’s competitors are also stressing that the US government’s crackdown on cryptocurrency leading companies will be Binance’s hidden concerns. The US government has strong supervision of BitMEX and TELEGRAM. The former is aimed at derivatives, and the latter is aimed at security tokens. The security ball station and BNB are also more or less involved. So does Binance have risks from across the Pacific?

On October 29, Forbes broke the news that Binance intends to evade US cryptocurrency regulation through a well-designed corporate structure. The article disclosed a 2018 business plan “Tai Chi”. The primary goal is to reduce the pressure brought by U.S. regulatory and anti-money laundering regulations, and ultimately use “Tai Chi” as a shield against U.S. regulatory measures to help Binance in the United States. Develop high-leverage cryptocurrency derivatives trading services.

The article believes that Binance’s M&A manager and legal counsel Jared Gross and former employee Harry Zhou participated in the formulation of the “Tai Chi” plan, and even hinted that the FBI was involved in the investigation. The founder of Binance responded on Twitter that the “Tai Chi” plan did not come from current or former employees of Binance, and emphasized that Binance has always operated in compliance with the law, and subsequently announced a lawsuit against Forbes reporters.

The incident has not stopped completely. Binance seems to have been warned to start a large-scale investigation of U.S. users of the currency security ball station, requesting that funds be withdrawn within 14 days and transferred to the Binance U.S. transaction with a compliance license. However, Binance said that in 2019, it announced that it would not provide services to US users, and regular investigations are the norm and will not target any incidents.

The derivatives trading mentioned in Tai Chi is currently a business that the US regulators pay more attention to. The world’s largest professional derivatives exchange BitMEX has just been severely cracked down. High-leverage cryptocurrency derivatives trading services require registration with the US Commodity Futures Trading Commission (CFTC) and obtain relevant licenses. Since September 2015, the CFTC has regarded cryptocurrency as a commodity under the U.S. Commodity Exchange Law and included it in the scope of supervision, including cryptocurrency derivative contracts.

According to the information on the CFTC official website, based on the registration licenses obtained by the Chicago Mercantile Exchange and LedgerX Cryptocurrency Options Exchange, which have listed bitcoin derivatives, the cryptocurrency derivatives trading licenses issued by the CFTC mainly include the following categories: Trading platform (Swap Execution Facilities), Derivative Clearing Organization (Derivative Clearing Organization), Designated Contract Market (Designated Contract Market). It took 5-6 years from the submission of the application for LedgerX to the formal approval of each license, which shows that the application procedure is complicated and strict.

What are the consequences of evading CFTC regulation? In October this year, the CFTC sued BitMEX to provide trading platform services without registration, provide illegal option services, fail to register as a designated contract market, etc., and violate relevant anti-money laundering regulations. Later, BitMex executives were directly arrested, and the current storm is still ongoing. This indirectly aggravated the Forbes article’s allegations that Binance evaded supervision.

It can be seen that the US subsidiary of Binance cannot legally take a share in the field of cryptocurrency derivatives for the time being. But on the other hand, the derivatives service of Binance Ball Station began to advance after it was once not optimistic. Multiple statistics show that Binance derivatives trading volume has ranked first in the world, with a 24-hour trading volume exceeding tens of billions of dollars, such a large transaction. Under the circumstances, it may be inevitable that non-compliant users will miss the net.

Different from BitMex’s attitude of always avoiding regulation, Binance has always embraced regulation, including BUSD stablecoin obtaining approval from New York State; assisting the US Department of Justice in arresting Russian hackers. Binance USA holds currency transfer licenses in multiple states in the United States (companies that provide payment services in the United States need to obtain currency transfer licenses in each state, but the license is not issued for the cryptocurrency industry). However, the licenses listed on the Binance US station do not see the New York State BitLicense (a cryptocurrency trading license held by the gray-scale affiliate Genesis) and the registration license issued by the CFTC.

Judging from the US government’s crackdown on BitMEX, a large number of past violations have been traced: including providing services to hackers and Iranian customers; providing services to users who do not have KYC; and treating the United States with a bad attitude towards supervision. In contrast, Binance is more like a “good boy” of supervision, but as a new industry and huge volume, if the US government attacks the industry’s leading companies, Binance will also face risks.

In fact, the leading US exchange Coinbase is in the midst of a war with the US government. A few weeks ago, Coinbase, together with a number of cryptocurrency companies and investors, wrote to the Treasury Department to protest the upcoming regulations. The proposed regulations may require things like Coinbase. Such financial institutions verify the recipient or owner and collect relevant identity information before the owner of the non-custodial wallet receives the asset.

In addition to derivatives, another business Binance may be regulated by the US government is its platform currency BNB. In April 2020, the U.S. District Court for the Southern District of New York received a series of class actions stating that Binance had not registered its token (BNB) as a security, and Binance had not registered with the US Securities and Exchange Commission as an exchange and brokerage trading service provider. Businesses, investors did not obtain sufficient information in accordance with the requirements of federal and state securities laws to understand that their investments have significant inherent risks.

Although the aforementioned Forbes implied that the FBI investigation is likely to be groundless, many people did not pay attention to the fact that in July this year, the US Securities and Exchange Commission (SEC) stated that it would authorize the blockchain analysis company CipherTrace to track Binance Chain transactions and BNB. The initial period of authorization is one year, and the subsequent period can be extended up to 4 years. Binance responded that the authorization is aimed at reducing illegal activities such as hackers and fraud. Why the SEC initiated this investigation and the current investigation progress have not been disclosed.

Refer to the U.S. government’s judgment on TELEGRAM tokens and Howey’s test standards, including investors’ need to invest funds or other resources; investors’ funds, services or goods are concentrated and unified into common projects under the control of the investment promoter; investors expect investment The project brings profit returns, and the investor also needs to bear the risk of capital loss; the investor’s return is only earned by the investment promoter or a third party unrelated to the investor; generally speaking, the investor does not participate in the actual operation of the project. The success of the project has nothing to do with investors. The most important thing is that investors expect profitable returns from investment projects. BNB has a high probability of failing the Howey test and is defined as a security. ” The legal supervision path of U.S. non-sovereign digital currency “

Binance is also very sensitive to this. The response strategy is to downplay BNB’s investment attributes and strengthen its functional attributes. At the end of 19, Binance published a blog post about the exploration of multiple applications of BNB, saying that the total number of these applications has exceeded 120. The argument is that BNB is not a security token. In addition, it is worth noting that Binance has invested heavily in charity, which is suspected to be related to the response to US regulation.

in conclusion:

First, Binance’s business has expanded extremely fast. Because the US regulators have a tradition of cracking down on industry financial giants and the cryptocurrency industry itself has vague rules, there is no small risk from this perspective.

Second, Binance is very sensitive to U.S. regulation, responds quickly, and invests heavily, and has taken many measures to embrace regulation.

Third, the US regulation is different from China’s. It is more “on track” with less uncertainty and room for negotiation. Unless it is entirely confrontational, tragedies like TELEGRAM or BitMEX will occur. Binance may also face problems with OKEx and Huobi, but the leaders’ presence abroad will at most affect China’s business.

Fourth, for ordinary investors, there is no need to worry about the regulatory risks of Binance from the United States for the time being, but for Binance, the supervision from the United States will still be an extremely important matter internally and externally.

Original Source: Wu Said Blockchain

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