Full Text of Bloomberg Interview with He Yiquan: Global Regulatory Trends are Inevitable
Bloomberg Interview with He Yiquan: Global Regulations are Inevitable.
One of the most influential figures in the $1.2 trillion cryptocurrency market, He Yi, is now facing many challenges as she and CZ (Zhao Changpeng) co-founded Binance.
Original text from Bloomberg, compiled by Odaily Planet Daily:
Over the past six years, even as governments around the world have continued to crack down on cryptocurrencies, a Binance executive has successfully kept a low profile and continued to exert influence – He Yi.
As one of the co-founders of this troubled digital currency empire, she is one of the most powerful people in this $1.2 trillion industry. As regulatory pressure mounts and the survival of the largest cryptocurrency exchange is threatened, she is also facing huge losses.
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After successfully marketing Binance through media platforms in the early days of the company, He Yi, who was once a Chinese TV host, played a very important role in its rapid rise. Now, she faces the most dangerous moment in the company’s history, as it is a leading force in token trading, venture capital and digital art. The US financial regulator has accused Binance of operating illegally, violating trading rules and failing to meet compliance requirements, while it is also under review elsewhere (from France to Australia).
As the company’s dominant market share comes under pressure, senior executives face huge risks. According to Bloomberg Billionaires Index, CEO and Co-Founder Zhao Changpeng (CZ) is worth about $29 billion, and He Yi also enjoys huge wealth as an early shareholder (the size of her holdings is not public). The couple share their wealth in many ways: they are partners in both business and life, and have children.
In a series of interviews with Bloomberg, including before receiving the new lawsuit from the US SEC in Dubai, He Yi attempted to convey two important messages. First, there may not be as much disagreement between Binance and regulators as some believe. Second, the company is far from the villainous image portrayed by its critics. “If they really take the time to understand our industry, they would find that if Binance is not compliant, there are hardly any other global trading platforms or offshore companies that are compliant,” she said.
She said in a five-star hotel, the Address Fountain Views, in downtown Dubai last month that Binance was known for not having a formal headquarters. This theoretically makes it harder to prosecute and regulate, but He Yi and Zhao Changpeng have established a growing foothold in this Gulf city. Someone has compared her relationship with Binance CEO to that of FTX’s SBF and Caroline Ellison, which is destined to fail. He Yi categorically denied the comparison. (We’ll talk more about this later.) Facing the latest US allegations, which mark the end of the era of laissez-faire cryptocurrencies, He Yi took a more conciliatory tone in subsequent WhatsApp messages. “We respect the attitudes of regulatory agencies, whether they support or oppose the development of cryptocurrencies,” she said. “I understand that the overall intention of regulation is to protect investors.” It should be noted that Binance is not the only company feeling the pressure. The US SEC has also charged major platforms, including Coinbase Global Inc. and Kraken, with violating securities regulations. However, the charges against Binance are different in scope and severity. US officials allege that the company lacks sufficient anti-money laundering measures, manipulates trading volumes, and mishandles customer assets. According to Bloomberg, it is also under investigation by the Department of Justice, and Binance’s US platform is to be cut off from the banking system. Similar banking-related issues are also affecting the company’s operations in other regions.
US investigations do not always lead to charges against individuals or companies. The Justice Department has yet to announce any case against Binance, Zhao Changpeng, or other executives. A Binance spokesperson referred Bloomberg’s inquiry to the company’s response to the SEC complaint earlier this month. Binance called these regulatory actions disappointing and vowed to defend its rights, claiming that customers’ funds have never been at risk from its platform.
Behind the scenes, He Yi’s influence extends across the exchange, which accounts for about half of global cryptocurrency trading volume, and has around 8,000 employees worldwide. One of her responsibilities is overseeing Binance Labs, a billion-dollar venture capital fund that has backed over 200 projects, including decentralized file-sharing platform BitTorrent and blockchain gaming leader Axie Infinity. She is credited with helping to drive the growth of Binance’s BNB chain, which the SEC recently called an unregistered security. She also assists in overseeing institutional client business and acquisition transactions, such as CoinMarketCap.
The reason is that she never became the representative of Binance. This is a weakness that she mentioned multiple times in an interview with Bloomberg, one of which lasted more than three hours and was conducted in Mandarin. However, the company’s top management has been trying to downplay its connection with China, as China has already implemented a ban on cryptocurrency trading.
“When I interact with Western journalists or give public speeches, people might see our company as a Chinese company, right?” she said.
Evidence of He Yi’s involvement in the earlier days of Binance can be found in the case brought by the US Securities and Exchange Commission (SEC) against the exchange. According to a transcript of an audio file translated into text released on June 6, 2019, the speaker identified as Zhao referred to He Yi as part of the decision-making process to circumvent restrictions and allow US users to access larger Binance exchanges.
For critics, Binance still operates like a startup, with a governance and ownership structure shrouded in mystery, and its commitment to millions of users boiled down to: you can trust us. However, for He Yi, the transparency offered by Binance exceeds the accusations of critics, and the exchange has been collaborating with US regulators, a move that has drawn objections from Washington.
“The global trend of regulation is inevitable,” she said. “You cannot solve this problem by shouting ‘fight’ a few times.” He Yi did not respond to the SEC’s allegations regarding market makers.
Unlike the allegations against FTX, she emphasized that Binance did not touch user funds for its own use, nor did it use its own token, BNB, as collateral for loans.
Speculation about Zhao Changpeng’s departure has been increasing. Although he has expressed no intention of relinquishing power in the near future, it now seems like a real possibility. When asked about a Binance without her and Zhao Changpeng, He Yi said they each have backup senior executives who are being trained, but refused to disclose their names. “I think we’ll be fine. We’re not a single point of failure.”
Unlike the practice on Wall Street, where trading is done through a series of intermediaries, CEXs can handle everything from matching orders to custody of client assets, putting investors at potential conflicts of interest and counterparty risks. As scrutiny of cryptocurrency businesses grows increasingly strict, Binance has increased the number of compliance personnel to improve its image. However, according to data from industry expert CCData, its trading share in the derivatives and spot markets has declined from earlier this year.
“Binance is at a disadvantage,” said Austin Campbell, a part-time professor at Columbia Business School who worked for Blockingxos, which issued the Binance-branded stablecoin BUSD. “Western regulators are cracking down on this business model – either you have a completely independent custodian, or there are stricter rules for asset custody, user fund processing, and responsibility bundling.”
When He Yi first entered the cryptocurrency field via OKCoin exchange in 2014, China was at its center. As a travel show host, she appeared as a judge on a reality show to promote the platform. That same year, she recalled hiring CZ as chief technology officer based on his years of experience in trading systems engineering, including work at Bloomberg News’ parent company, Bloomberg LP.
By the time CZ invited He Yi to become an advisor to Binance in 2017, He had left the cryptocurrency industry to become an executive at a live-streaming company. She helped rewrite parts of Binance’s $15 million initial coin offering white paper and later agreed to join the exchange. Technically, unlike most co-founders, she wasn’t one of the initial members of Binance. But those familiar with its early lore generally agree that her reputation in China’s cryptocurrency community was crucial to its immediate success, when the exchange was still a newcomer compared to OKCoin and others.
Six years later, the cryptocurrency industry is being punished for being seen as a hotbed of illegal activity and Binance is coming under fire for its market share fervor. To some extent, it has become the Robin Hood before Robin Hood. For example, until mid-2021, users could withdraw up to two bitcoins without providing any form of identification. It also listed some tokens that have been proven to be failures, including last year’s bankrupt TerraUSD algorithmic stablecoin. For cryptocurrency critics, Binance has profited by selling tokens to almost clueless individual speculators.
There is also an elephant in the room: CZ and He Yi have a child – a fact that is known to members of the cryptocurrency community. How would she describe their relationship? She politely declined to answer.
“What do they call it in the entertainment industry? CP?” she said, referring to the Chinese internet slang that means fans hope two people, whether on-screen or in real life, will have a romantic relationship. (Known as “shipping” in the West.) She also referred to CZ as her comrade and then like a college roommate. She said their relationship only began after she joined Binance. He Yi likened it to Amazon, as if MacKenzie Scott, Jeff Bezos’s ex-wife, was a contributor in the early days of the company. She acknowledged that this was not a “perfect” example and, among other reasons, questioned the simulation of Scott’s existence: Scott was not as deeply involved in Amazon’s billion-dollar business as He Yi was in Binance.
For the analogy of SBF and Ellison, He Yi emphasized the differences.
“There is a significant difference here: Caroline is an employee, and I am a partner.” “A partner relationship requires more than a dating relationship. A partner relationship is about comrade-in-arms, and a dating relationship is about chemistry. The former is based on common beliefs and transcends gender, while the latter is based on physical attraction and selfish desire.”
He Yi also pointed out that she, as a pioneer in cryptocurrency, was ahead of CZ. “Even without personal relationships, I am the one who introduced CZ into the cryptocurrency trading business,” she said. “CZ’s ‘take me to Binance’ was based on the achievements I had already made,” she added.
But for regulators concerned about blurred and concentrated power, this situation will raise alarms. She is responsible for both the Binance department that invests in cryptocurrency projects and the department that decides on listed projects. According to Vishal Sacheendran, a director of Binance, the Binance token listing team supervised by her has always been mysterious, and even few internal personnel know its members. The company said this is to reduce potential conflicts of interest. However, after the collapse of FTX, the complex relationship between its trading operations and the Alameda Research trading department has been partly attributed to its opaque business model.
It should be clear that large cryptocurrency exchanges typically integrate a range of financial services that cannot coexist in traditional finance. But her extensive investment portfolio and the opacity around who is at the helm suggest that there is a tight-knit circle at the core of Binance. She played down concerns about conflicts of interest, writing, “Many of the projects we invest in do not actually go public. There are different leaders and different teams, and the two teams are completely independent.”
However, US regulators seem determined to pursue the cryptocurrency giant and have declared much of the industry’s activities illegal. Some compromise may have to be made. It is unclear at this time what specific concessions Zhao Changpeng and her company are willing to make, although she admits that the era of unfettered cryptocurrency is over.
She said, “If you can’t beat them, you have to surrender.”
