Binance.US Moves to Reduce CZ's Stake Amid Regulatory Woes

Binance.US, the American subsidiary of the world's largest crypto exchange, is reportedly exploring ways to reduce the stake of its owner and founder, Changpeng Zhao (CZ). Sources indicate that CZ has been trying to sell part of his stake since last summer, and recent regulatory scrutiny may be a driving force behind the decision.

Launched sometime 2019, Binance.US is a separate entity from the global exchange. However, given the recent legal issues involving Binance and CZ, executives are considering limiting the exchange's relationship with its founder to alleviate regulatory pressure. The US Commodities and Futures Trading Commission (CFTC) has charged Zhao with willful evasion of federal law and ostensibly operating an illegal digital asset derivatives exchange. Reducing CZ's majority stake in Binance US may help the exchange secure necessary regulatory licenses for smooth operation in the US market.

Over the past year, Binance and CZ have faced increased scrutiny from US regulators. In response to the CFTC lawsuit, Binance has emphasized its commitment to regulatory compliance, implementing a "three lines of defense" approach to risk and compliance. As CZ remains the majority owner of Binance US, the management team is reportedly seeking ways to reduce his stake and influence over the company to mitigate potential regulatory obstacles.

Notably, a recent report from venture capital firm Andreessen Horowitz (a16z) reveals that the share of global crypto developers based in the United States declined by 26% between 2018 and 2022. The report cites lack of regulatory clarity as a possible reason for the decline, which may have hindered the growth of web3 in the US.

Despite this situation, a16z claims that it remains hopeful that the US may regain some of its lost ground, citing multiple bills tabled in Congress seeking regulatory clarity for crypto assets, as well as several impactful crypto cases that may soon be decided. These include the Securities and Exchange Commission's enforcement action on Ripple, the Treasury Department's Tornado Cash civil actions, and the bankruptcy proceedings of firms such as FTX, Voyager, and Celsius.

In recent months, the SEC has targeted American-based crypto exchanges, imposing regulations similar to those applied to banks and stock brokerages. This crackdown has prompted several major players, including Coinbase and Gemini, among others, to consider moving their operations offshore. Exchanges such as Kraken and Bittrex have already shuttered or reduced their services in the United States as the war on crypto continues.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.