A Letter From Our CEO: 2022, the Year of Resilience
By crypto standards, this past year was turbulent but not unprecedented when we look at the data. However, there is much to reflect upon both for Binance and the digital asset industry at large following the collapses of Celsius, Voyager, and FTX, among others. On the surface, it may seem that for our ecosystem, 2022 has been mainly defined by crises and failures: crypto prices’ backslide from the previous year’s all-time highs; a chain of major players’ implosions that shook users and regulators’ confidence in the industry; intensifying scrutiny of the cryptocurrency space by policymakers, media, and the public.
While this might look like a threatening combination of multiple tough headwinds, our industry is still in its infancy and should not be defined by the challenges it faces, but by how it withstands them. In this regard, 2022 gave us many more reasons to be optimistic than any other year on record as both the industry and Binance demonstrated remarkable resilience and tenacity.
When crypto was created, it spawned a cottage industry that I often refer to as the “BTC is going to $0” group. Selling books, farming social media engagement, and going on the paid speaker circuit to decry that the sky is falling is quite a profitable endeavor. Right now, FTX’s implosion is the latest issue du jour that they are seeking to capitalize on. They are calling this our “Lehman moment” and arguing that this latest bitcoin price pull-back is comparable to the dot-com bubble crash. They conveniently leave out the fact that both of those events were cleansing moments for those respective industries and – the last time I checked – both the internet and banking sectors were still alive and well.
Adoption and building
One of the key metrics with which our industry measures its success is adoption rates. Amid all challenges of 2022, blockchain adoption never stopped, with individuals and institutions across the globe continuing to jump into the fray. In terms of retail adoption, emerging markets have led the charge, while globally renowned brands like KPMG, JPMorgan, Rakuten, CVSHealth, Tencent, Fidelity, Baidu, Tesla, Cloudfare, PayPal, American Express, Accenture, Christie’s, BlackRock, Nasdaq, McDonald’s, Google Cloud, Mastercard, Sony, and Nike were among the many organizations that benefitted from introducing blockchain-powered solutions this year. Granted, the erosion of trust in the crypto industry that this year’s crises provoked will be a setback for mainstream adoption. Yet, we now see that the demand for and interest in digital assets remains robust, and on this foundation, the industry will continue creating highly valuable and usable products and services. Through hard work and focus on building, we will restore user trust and emerge even stronger.
Amid the noise that impacts token prices, projects’ reputations, and the fortunes of individual investors, my goal has been to keep everyone at Binance focused on things that matter the most: building and staying user-focused. I am proud that we remained true to these core values in everything we do. We’ve grown our business and our team: 7,500 Binance employees, representing over 100 nationalities, now serve more than 120 million users globally. We continued building bridges between the worlds of crypto and traditional finance. For one, with Binance P2P, users can now buy and sell digital assets with more than 100 fiat currencies all over the world. Furthermore, we’ve invested more than $500 million through Binance Labs to support Web3 and blockchain innovation and donated more than $20 million through Binance Charity to non-profits and relief organizations globally. Although it is impossible to quantify, I feel that we have amassed significant reserves of the most precious resource: the trust and loyalty of the incredible Binancian community, for whose support we are most grateful.
Compliance and transparency
Perhaps most importantly, in 2022 the crypto industry has made massive strides in yet another domain that is fundamental to both mainstream adoption and user security: regulatory compliance. I am proud to say that Binance has been and will remain at the forefront of this momentum. In the last year and a half, we’ve seen substantial progress in creating greater regulatory certainty for the blockchain sector. As a responsible industry leader, Binance will continue to work even closer with regulators and law enforcement globally in the name of blockchain adoption and education.
To facilitate and coordinate this work, we will continue to engage with the wider industry to discuss standards for consumer protection. Regulators are, understandably, going to be much more skeptical, and regaining public trust will be challenging. However, I believe these are short-term challenges that will prove beneficial for the blockchain space in the long run. As of now, we need a coordinated push for the entire industry to become more transparent, compliant, and safe. This is why I published my Six Principles that I believe our industry should adopt to protect users. The industry must be more open to regulatory policies that ensure user protection, such as those that provide guidance to centralized exchanges on custody requirements, the marketing of assets, and risk assessment and disclosures.
Having secured licenses and registrations in 14 jurisdictions spanning five continents as of the end of this year, Binance has proved our commitment to holding ourselves to the highest regulatory standards. We view this work, along with transparency initiatives like disclosing our wallet addresses and making user holdings verifiable through mechanisms such as the Merkle tree, as central to regaining trust and getting us closer to our ultimate goal: advancing people’s financial freedom. Next year, we will continue our compliance and transparency efforts.
No matter what 2023 brings, we are prepared. Binance has a stellar team of diverse and mission-driven professionals, an expert management suite, and healthy reserves. At the core, we run a simple business model that is robust in the face of external shocks. Above all, we are driven by a long-term vision and a set of fundamental values, which helps us focus on building despite any potential FUD (fear, uncertainty, and doubt). We will stay focused on building tools that people use, continue expanding our team, and invest in strong projects next year.
The industry, in my view, will be managing the fallout from the FTX implosion for a prolonged period of time. Much work lies ahead to show that the blockchain space is not defined by high-profile bad actors. In terms of market health, every bear market is better than the last, and I expect the industry to recover relatively quickly. We’re still seeing the secondary cascading effects on the market, but crypto prices have been incredibly resilient. Regardless of whether recovery will happen in one month or one year, we will definitely come out on the other side as an exponentially stronger industry.
It’s critical now that the ecosystem focuses on protecting users first and foremost, but also on innovating and building in order to bring crypto and Web3 more deeply into people’s daily lives. I believe that infrastructure and data tools will continue to grow and advance and that we’ll see Web3 ownership evolve, with a rise in non-custodial and multi-chain wallets. Our industry has created a number of Web3 peripheral products that have demonstrated a basic ability to provide utility for users – from NFTs to GameFi. I believe that the next bull market will come from innovation in the ways these products are used to create unique utility.
It may happen next year or the year after next. The exact timing is impossible to know (and also quite irrelevant), so Binance will keep focusing on what is up to us: building, innovating, putting users first, and leading, by our own example, the charge to raise the industry standards of transparency, security, and compliance.
Binance’s Key Highlights of 2022
Regulatory compliance is central to Binance’s mission to advance the mass adoption of digital assets while ensuring user safety. Making sure that we live up to high regulatory standards, we enable millions of users to benefit from accessing compliant financial products and services as well as promote trust in and awareness of our industry.
Over the last 12 months, we have seen unprecedented engagement by governments and regulatory bodies across the world with the crypto industry. This represents a seismic shift in the regulatory environment from the one that we operated in for the better part of the last decade. It also indicates a much broader acceptance that cryptocurrencies are here to stay and that the industry is gaining mainstream adoption.
As of the end of 2022, Binance has secured 14 registrations and authorizations in jurisdictions spanning five continents, including Colombia*, Abu Dhabi, Bahrain, Dubai, South Africa, France, Italy, Spain, Poland, Lithuania, Cyprus, Kazakhstan, Australia, and New Zealand. Our compliance team grew from 500 to 750 people in 2022.
In the coming year, we’ll keep engaging with national and international regulators and policymakers to ensure that we meet all applicable requirements, as well as to promote sensible crypto regulations that protect users while allowing financial innovation to thrive.
Transparency & Trust
In the aftermath of a series of high-profile bankruptcies and liquidity crises that shook the digital asset industry this year, it became clear that transparency is the only way for centralized cryptocurrency platforms to maintain user trust. Embracing the ethos of transparency and responsibility would require exchanges to rethink some core principles on which they operate. To facilitate this shift, CZ offered six key requirements for Binance and other centralized players of the crypto ecosystem to adopt: a risk-averse approach to user funds; never using native tokens as collateral; showing live proof of assets; maintaining strong reserves; avoiding excessive leverage; constantly perfecting security protocols.
In the spirit of this framework, Binance rolled out a series of transparency initiatives. We shared details of our hot and cold wallet addresses and introduced a Merkle tree-based proof-of-reserves (PoR) system designed to show that we hold enough funds to back all user assets at a 1:1 ratio.
Providing proof of custody for reserves of this scope and scale is still unique to the industry, and therefore an immensely complex task. It requires different degrees of internal and third-party on-chain verification compared to traditional financial institutions. The initial release of the BTC reserves was just the first of many steps in the months ahead to provide more transparency and reassurance of our reserves. We are resolved to develop new systems that allow users to access continuous on-chain verification of their assets in custody to regain user trust and prove that crypto can be secure and transparent.
At Binance, we realize that sustainable growth of the crypto industry requires partnership and constant dialogue with global law enforcement. Contrary to the still-widespread belief that the digital asset space is a hotbed of cybercrime, data show that in 2021 only 0.15% of cryptocurrency transactions were associated with some type of illicit activity.
However, this doesn’t mean that we shouldn't be vigilant and look out for our community and the wider ecosystem. We readily take action to prevent bad actors from using our platform, and the best way to do it is by working closely with law enforcement to trace and take down cybercriminals. In addition, we regularly work with private chain analytics companies to identify and shut down any accounts associated with fraudulent activity.
To further strengthen our commitment to fight against cybercrime, ransomware, and finance terrorism, we’ve increased our security and compliance headcount by over 500%, and became the first crypto exchange to join the National Cyber-Forensics and Training Alliance (NCFTA) – a non-profit organization focused on identifying, mitigating, and neutralizing threats of cybercrime.
In 2022, our security and investigations team responded to over 47,000 law enforcement requests in addition to organizing and participating in over 70 anti-cybercrime workshops for global investigators and cybercrime fighters.
In 2022, we continued improving our security systems and introducing more rigorous identity verification protocols. Today, Binance’s know-your-customer (KYC) requirements are among the strictest in the industry: for one, only those users who have verified their identity using government-issued documents are allowed to transact in digital assets on our platform. Not only this reduces the chances of bad actors using the Binance ecosystem to move ill-gotten funds but also enhances the safety of all our users.
To further protect users from unexpected losses, Binance maintains the Secure Asset Fund for Users (SAFU), an emergency insurance fund originally established in July 2018 that is now valued at $1 billion. Comprised of BTC, BUSD, and BNB holdings, the fund is transparent, and its wallet addresses are available for everyone to see.
We believe that the best way to make our users’ crypto journeys safe and compelling is to help them acquire as much relevant knowledge as possible. From basic security tips to advanced blockchain concepts and an understanding of the mechanics of complex financial products, education is what determines one’s ability to take advantage of digital assets’ limitless potential. We are proud that Binance Academy, one of the crypto industry’s biggest knowledge hubs, helps thousands of people every day to access essential crypto and blockchain knowledge for free.
In 2022, a total of 26 million people used Binance Academy to get a better understanding of digital assets. Furthermore, the Academy team brought crypto and Web3 education to 73 universities (25 in North America, 23 in the EU, 20 in MENA and APAC, and 5 in Latin America), reaching more than 5,500 students. To further extend the reach of crypto knowledge, Binance Academy has also started to produce and publish structured online courses in 14 languages this year, with plans to launch career-oriented courses tailored to the needs of future Web3 professionals next year.
* In Colombia, Binance operated jointly with Banco Davivienda within a regulatory sandbox promoted by the Superintendencia Financiera de Colombia.