Binance in talks with sovereign wealth funds about investments

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Binance is in talks with sovereign wealth funds about them taking a stake in the world’s largest cryptocurrency exchange, as it seeks to buttress relationships with governments and offset aggressive regulators, according to its chief executive.

The exchange has faced mounting pressure from regulators this year and believes investments from sovereign wealth funds would help improve its “perception and relationships” with various governments, Changpeng Zhao told the Financial Times in an interview.

“But it may also tie us to specific countries . . . which we want to be slightly careful with,” he added.

Zhao, who is known as “CZ” and also founded Binance, said its global entity was in preliminary discussions to raise capital from several sovereign wealth funds in addition to the capital raising for its US affiliate ahead of a public listing. He declined to say which funds the company was in discussions with. “The ticket size involved will not be small . . . it won’t be a short process,” he added.

Crypto exchanges have seen their valuations soar in recent months, tracking the growing value of bitcoin and other cryptocurrencies. Coinbase became the only publicly listed cryptocurrency exchange earlier this year at a valuation of $76bn, while FTX recently achieved a valuation of $25bn in its last funding round, up from $1bn in February 2020.

Zhao is the biggest shareholder in Binance, which is profitable. Its Singapore business has been backed by Vertex Ventures, the venture capital arm of the state-backed investment company Temasek.

The crypto entrepreneur said last week at the Bloomberg New Economy Forum that the platform was recording daily transaction volumes of $170bn, compared with $10bn-$30bn two years ago. Zhao said the revenue run rate was “in the billions”.

The attempt to strengthen its capital structure comes as Binance steps up the hunt for a new global headquarters in cities including Singapore and Dubai.

The company offers crypto trading to consumers around the world but regulators have criticised some of its high-risk financial products, including derivatives trading.

Until recently, Binance was secretive with the location of its founder and insisted it had no fixed headquarters. The company was founded in China but pulled out of the country in 2017, after crypto exchanges were banned there, and established a number of offices in other states.

Binance says it has no office or operations in mainland China and only a “small number” of employees remaining working on blockchain technology and other “non-platform related” tasks. It claims no data otherwise resides in China.

China’s ban on crypto mining and transactions exemplifies the government’s approach to block outside technology in favour of delivering a homegrown version, Zhao said. Beijing is widely promoting its own central bank digital currency.

That method has worked in the internet sector with companies including Alibaba and Tencent but Zhao said it “may be different” with the freewheeling crypto industry.

The crypto clampdown in China has come alongside increased regulatory scrutiny this year from regulators in Europe, Asia and the UK.

Binance last week published a letter of fundamental rights for crypto users. The manifesto-like bill tackled a range of issues including user privacy and also called for greater regulation.

There is a perception that exchanges are “being crazy” as a result of not having traditional licences, Zhao said. “I’m a very calm guy. I’m not a crazy guy. So we actually want regulation to be more clear in this space.”

Even so, regulators including the UK’s Financial Conduct Authority say they are unable to properly supervise the business as Binance has declined to provide basic information such as trading names and functions for its global entities. Big banks, such as Barclays, have even stopped some customers from transferring funds to Binance.

Zhao said he was not worried about illegal activity on Binance’s platform because the company was “probably better than banks” for having checks in place, such as know your customer and anti-money laundering technology, given the exchange has been under scrutiny.

Binance has increasingly gravitated towards governments where the company can communicate “more directly” with regulators, such as Singapore. Zhao added he had also spent the past two months meeting regulators in cities including Dubai, Paris, Qatar and Bahrain.

Most countries do not have clear guidelines for products including gamified tokens and non-fungible tokens, he said, so Binance was waiting for more clarity before “committing to a single jurisdiction”.

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