Overlord, Conspiracy, and Collapse: The 13-Year Rise and Fall of Cryptocurrency Exchanges

The 13-Year History of Cryptocurrency Exchanges: Rise, Overlord, Conspiracy, and Collapse

The infinite war of crypto exchanges.

Related reading: “Overlord, Black Curtain, and Collapse: 13 Years of Rise and Fall of Cryptocurrency Exchanges (Part 1)”

Written by: Ryanu, Thomas

In 2014, Forbes named 30-year-old “female version of Steve Jobs” Elizabeth Holmes the world’s youngest self-made female billionaire, and also named her one of Time magazine’s “100 Most Influential People in the World”.

By 2022, major magazines are rushing to report on and praise another 30-year-old young man.

Forbes magazine said that besides Zuckerberg, there are only a few such young and wealthy people like SBF.

Fortune magazine boldly asked, SBF, the next Buffett?

Like Holmes, SBF was also selected as one of Time magazine’s “100 Most Influential People in the World (2022)”, and as the founder of the cryptocurrency exchange FTX, he is the only person in the cryptocurrency industry to be selected for the Time 100, even richer than CZ, the richest man in the coin circle.

At this time, SBF is the fastest accumulating man in the world, the new global idol of the cryptocurrency industry.

When SBF was praised by various media, almost no one could think that half a year later, “female version of Steve Jobs” and “Buffett second” would be linked to fraud.

In November 2022, when SBF was hiding in the east and west like a dog, Holmes’ fraud case was sentenced to 11 years and 3 months in prison.

SBF, on the other hand, was bankrupted due to misappropriation of user funds, with a net worth of tens of billions disappearing overnight. He went from the fastest accumulating man in the world to the man whose wealth shrank the most quickly.

And all of this started with CZ, who had a love-hate relationship with SBF.

Hello everyone, this is Waimu (YM) Crypto.

Exchanges are undoubtedly one of the most profitable businesses in the cryptocurrency industry, and also one of the most fiercely contested.

Since the birth of the first cryptocurrency exchange, the exchange industry has been in flux, with success and failure changing hands in an instant.

Even today, although Binance and Coinbase hold the leading positions and control most of the market share, the exchange industry is still in flux.

This article will review the development history of cryptocurrency exchanges, focusing on four aspects: gameplay, targets, security and compliance, and patterns, while reviewing this history, thinking about how these factors have determined the changes in the pattern of the cryptocurrency exchange industry.

1. 2018-2019: Fighting in the bear market 1) Surrounding FCoin

Going back to 2014, CZ became the CTO of OKCoin, and Zhang Jian became the CTO of Huobi. The exchanges created by them will be the protagonists of the next cycle.

At the end of 2017, with the two traditional financial giants CME and CBOE entering the Bitcoin futures race, and the traditional stock exchange Robinhood entering the cryptocurrency field, the frenzy in the cryptocurrency market reached its peak.

In just one week, Bitcoin surged from $12,000 to nearly $20,000, and then began a year and a half of bear market.

However, when the market entered the cold winter, CZ ushered in his personal highlight moment.

Half a year after founding Binance, CZ topped the first Forbes cryptocurrency rich list, ranking third.

Forbes also gave CZ additional treatment: Forbes Magazine cover figure.

On the other hand, when the market entered a bear market, Zhang Jian, the former CTO of Huobi, began to show off his skills.

In May 2018, FCoin, founded by Zhang Jian, was officially launched and quickly became the focus of the market.

When Huobi went viral by launching with zero fees, Binance reduced fees through platform coins, and FCoin played a new height with regard to fees.

FCoin’s main selling point is “trading is mining, holding is dividends”, where not only are transaction fees paid by users 100% refunded in FT tokens issued by FCoin, but 80% of the previous day’s fee income is distributed as dividends according to the user’s FT holdings.

With this simple and crude model, a large number of users have flocked to FCoin, and its trading volume has soared, quickly becoming the “number one in the universe”.

After half a month of trading, FCoin announced in a high-profile manner:

24-hour trading volume reached RMB 28.8 billion, ranking first in the world, and surpassing the total of the second to seventh exchanges, such as OKEx, Binance, and Huobi.

FT prices also skyrocketed, increasing by over 100 times in less than a month.

FCoin’s sudden rise not only encroached on the shares of other exchanges, but also threatened the original operating model of exchanges, thereby attracting the joint strangulation of first-tier exchanges.

With the popularity of trading mining, many exchanges have followed suit, and even some long-dormant exchanges have revived in the heat of trading mining, while users have demanded that other exchanges follow FCoin and refund their fees.

Seeing the hard-won territory being rapidly eroded, Binance, OKEx and Huobi couldn’t sit still.

On June 19th, OKEx announced the “Open Win-Win Plan”, which will support 100 trading mining exchanges.

On June 20th, CZ tweeted several times to criticize trading mining, saying “there will soon be thousands of them, and then they will be worthless”.

Meanwhile, Zhang Jian responded “I appreciate Zhao Changpeng and Binance” and announced the launch of Binance’s platform coin BNB on the FCoin platform.

Launching a competitor’s platform coin on their own exchange was not common at the time.

Zhang Jian’s announcement of the launch of BNB at such a sensitive time was like adding fuel to the fire for Binance. A large number of users began to demand that Binance quickly launch a mechanism similar to FCoin’s, and some even said, “If Binance doesn’t refund our money, we’ll go to FCoin!”

Fcoin has further increased the proportion of coin-holding dividends from the previous 80% to 100%, which means that the platform will return all income to FT holders.

15 minutes after FCoin announced the increase in the dividend ratio, Binance announced an alliance plan similar to the OKEx Open Partnership Plan, stating that it will support 1,000 exchanges that engage in transaction mining and coin-holding dividends, and will directly rebate 200%, which is double the trading revenue on FCoin.

This transaction-mining war has entered a white-hot stage.

Both OKEx’s Open Partnership Plan and Binance’s alliance plan aim to create thousands of “transaction-mining” exchanges, as predicted by Zhao Changpeng, so that the value of such exchanges will disappear.

It turns out that the transaction-mining model cannot last for long. The trading-giveaway model attracted a large number of miners, and the FT output quickly increased. FTs generated every day were sold by users at the first opportunity, and the FT price began to plummet, and trading volume gradually shrank.

Since then, FCoin has made multiple attempts to save itself, but it has never returned to its former glory.

On August 15, 2018, FCoin announced the destruction of all undeveloped FTs, reducing the total amount of FTs from 10 billion to 4.9 billion, and the era of transaction mining created by Zhang Jian officially came to an end.

On February 17, 2020, FCoin officially announced its “runaway”, and Zhang Jian admitted in the “Truth of FCoin” article that FCoin’s deficit was as high as 7,000-13,000 BTC.

Prior to that, FCoin repeatedly calmed people’s hearts with technical malfunctions and system adjustments. One week before the runaway, it also announced the destruction of 700 million FT tokens held by the team, and finally cut a slice of FCoin’s believers.

Those who once raised their glasses and shouted “FT100, villa by the sea” but did not get off midway became the biggest victims of FCoin.

2) Derivatives Battle

In this round of bear market, the derivatives battle has once again begun.

This time, major exchanges have set their sights on perpetual contracts.

In 2016, BitMEX launched perpetual contracts and gradually gained a foothold in the market, with leverage of up to 100 times. BitMEX founder Hayes was dubbed the “king of leverage.”

Huobi once launched Huobi BitVC, which specialized in derivative trading, but it ended in failure. On December 10, 2018, Huobi Contract was launched, and just one day later, OKEx announced that it would launch perpetual contracts with leverage of up to 100 times, prompting Huobi to announce that it would also launch perpetual contracts.

At the same time, many exchanges specializing in derivatives were established, such as Bybit, which also relied on perpetual contracts to become successful. In the eyes of Bybit’s founder, “most of them are at the level of BYD at this stage. If a BMW appears at this time, users will be impressed and like it.”

In this situation, Binance is also uneasy.

In January 2019, in a luxurious villa in Singapore, CZ met SBF.

The two hit it off at first sight, and CZ even said, “I saw my own image.”

At that time, SBF had just left Wall Street and was preparing to launch his own cryptocurrency exchange, FTX. CZ generously invested $100 million and took a 20% stake in FTX.

At that time, Binance was mainly focused on spot trading, while the derivatives market was firmly dominated by other competitors. FTX focused on the derivatives market, complementing Binance perfectly.

In the announcement of Binance’s strategic investment in FTX, it wrote: “Help FTX’s ecosystem to continue to develop and keep up with the development of Binance’s ecosystem.”

At that time, CZ and SBF were truly like-minded. Because of their common interests and competitors, the two entered a harmonious honeymoon period.

In 2020, the trading volume of Binance and FTX grew rapidly, far ahead of other competitors.

However, while developing rapidly, the relationship between Binance and FTX has quietly changed.

The reason for the change is that the rapid expansion of both sides has gradually turned the original cooperative relationship into a competitive one.

After investing in FTX, Binance also launched a derivatives trading business internally. FTX expanded from the derivatives field to the spot market in its subsequent development.

The two sides have highly overlapping businesses, which has led to direct competition and conflicts that are only a matter of time.

By the middle of 2020, Binance, Huobi, and OKEx, the three major spot exchanges, also ranked in the top three in the derivatives market, with Bybit and FTX also occupying a place in the derivatives market.

Deribit is the only major player that focuses on options trading.

Although Deribit has been dominant in the options field for years, crypto options are still a relatively niche product. As of March 2023, monthly options trading volume is in the billions of dollars, still far behind the trillions of dollars in spot and futures trading.

In this round of the derivatives war, BitMEX, which had an early advantage, became the biggest loser. While major exchanges entered the derivatives market one after another, BitMEX encountered one problem after another.

In the crisis of 2020, when the price of Bitcoin plummeted by more than 50%, the crypto exchange faced a “big test” in extreme conditions.

Although everyone’s performance was not good, BitMEX’s performance was particularly bad, with consecutive crashes, causing BitMEX to lose the trust of some users.

The bigger blow came in October 2020, when the US Department of Justice sued BitMEX founder Hayes and others for violating the Bank Secrecy Act.

In the following time, Hayes was busy dealing with the lawsuit, BitMEX was in trouble, and the competition that had been watching on the sidelines rushed in to feast.

This included FTX, which was expanding rapidly at the time and was about to be crowned the new “king of crypto” by SBF.

However, two years later, when FTX fell and SBF was imprisoned, Hayes, who had just been released from house arrest on probation, became the gloating party.

In recent years, although the United States does not have specific regulatory laws for cryptocurrencies, it has arrested many exchange executives like Hayes. Today, US regulatory agencies are still one of the key factors affecting the exchange landscape.

3) IEO

In addition to the derivatives war, this round of bear market also set off a wave of IEO (Initial Exchange Offering) frenzy, where exchanges endorse quality projects and project tokens are publicly issued on exchanges.

In January 2019, Binance’s first IEO project soared by more than ten times, igniting the bear market. Other exchanges quickly followed suit. At first, everyone was happy and IEO was equal to “earning money when you win”.

However, the good times did not last long, and IEO was soon ruined.

As more and more projects are involved in IEO, more and more projects have broken through, and some projects have even plummeted, triggering a series of rights protection events. Trust is the lifeblood of exchanges. When some exchanges exhaust trust, IEO quickly differentiates.

Looking back at this stage, in terms of gameplay, major exchanges made frequent moves to grab traffic during the bear market. FCoin emerged and ushered in a very short period of brilliance.

However, FCoin was both made and lost by transaction mining. In addition to the unsustainable model, the explosion of transaction mining brought huge hidden dangers to FCoin.

According to Zhang Jian’s later disclosure, the FCoin system has been in a high-risk state since its launch, and continuous data errors have caused continuous outflow of funds, resulting in a large deficit.

This is also the place where centralized exchanges have been criticized. The assets are not transparent and internal management is ignored. Zhang Jian even had a fluke mentality until the end. He said, “Even if the decision of ‘all income is used for buyback’ is not made, we will have sufficient funds to cover losses even if the problem is discovered late. Unfortunately, history cannot be repeated.”

In fact, although the collapse of many exchanges has left countless lessons, history will still repeat itself countless times. From Mentougou to FCoin to FTX, many exchanges rely on opaque books and hope that “a small loophole” can be made up for by subsequent operations until a sudden thunderstorm destroys the platform.

As the market enters a bear market, derivatives have once again received attention, with FTX, Bybit and others relying on derivatives for their start. Meanwhile, the former king of derivatives has stumbled in the “312” exam and has been targeted by US regulators, gradually declining. The rise and fall of exchanges in the two rounds of derivative wars proves that product quality and user trust are the key to victory.

In terms of security and compliance, after nearly 10 years of development, security issues still plague the entire industry.

In January 2018, the Japanese cryptocurrency exchange Coincheck was hacked, with about $530 million worth of NEM stolen.

In February 2018, the Italian cryptocurrency exchange BitGrail was hacked and $170 million in cryptocurrency was bankrupted.

South Korea’s leading cryptocurrency exchange, Bithumb, was hacked twice in June 2018 and March 2019, resulting in millions of dollars in cryptocurrency losses.

Even the world’s largest exchange, Binance, was not immune to hacking. In June 2019, Binance was hacked for 7,000 bitcoins, and Binance announced that the entire loss would be borne by the investor protection fund.

The most dramatic may be the death of QuadrigaCX’s founder.

At the end of 2018, QuadrigaCX founder Cotten suddenly “died” in India, and because only he had the password to the exchange’s cold wallet, $190 million in cryptocurrency was “buried”. At the time, users questioned whether he had faked his death and fled, and demanded that Cotton’s body be dug up.

Strangely, after four years of silence, in December 2022, QuadrigaCX’s “dead wallet” suddenly transferred 104 bitcoins, and the truth of the matter is still unclear.

2 2020-2021: Decentralization & Compliance 1) Rise of DEX

Decentralization is an important foundation for the entire industry, but the most important infrastructure of the industry – exchanges – has long been held by centralized institutions.

Centralized exchanges (CEX) have been hit hard again and again, while the decentralized exchanges (DEX), which have the feature of users holding the assets themselves, have formed a sharp contrast.

However, due to various ecological and technical issues, DEX, which first appeared in 2013, has not attracted too much attention.

The real explosion of DEX is still waiting until 2020.

In 2020, under the background of the United States’ large-scale easing and the wind of liquidity mining, as well as the magical weapon of automatic market makers (AMM), a large number of DEX, led by Uniswap, quickly emerged.

In October 2020, Uniswap, the largest DEX, had become the fourth largest cryptocurrency exchange in the world, second only to the three giants of HBO.

However, until September 2020, Uniswap had not issued tokens, which gave imitators a chance.

For example, Sushiswap, by issuing tokens to incentivize more users to use it, aggressively seized some of Uniswap’s market share, forcing Uniswap to react and launch its own token.

Uni, Sushi, and Curve, which focuses on low-slippage trading of stablecoins, have become the three giants of DEX on Ethereum. The trading volume of the three platforms accounts for more than 80% of the entire Ethereum DEX trading volume.

In September 2020, the proportion of DEX trading volume to CEX trading volume reached 15%.

These DEXs have quickly occupied the long-tail market that CEXs cannot cover, and may further threaten the pricing power of CEXs, which has made all CEXs feel unprecedented fear.

A big battle is inevitable.

Therefore, on the one hand, CEXs have successively launched various high-heat DeFi tokens, and on the other hand, they are actively building their own exchange public chains.

The DEXs based on Ethereum all face the same challenge, that is, the constantly expanding high gas fees.

In September 2020, Binance took the lead in launching BSC. In December, Huobi launched Huobi ECO Chain. OKEx rapidly announced in September 2020 that OKChain will be renamed OKEx Trading Chain (OKExChain), but it was not launched until January 2021, and was ridiculed as “the war is over and I haven’t gotten on the bus yet.”

However, although HECO experienced a brief boom after going online, controversy and danger followed, leading to constant disputes.

The most successful is undoubtedly BSC.

The largest DEX on BSC, Blockingncakeswap, became the first project on BSC with a market value of more than 1 billion U.S. dollars in February 2021, with a 24-hour trading volume exceeding Uniswap’s peak. In March 2021, Blockingncake24’s 24-hour trading volume even surpassed the sum of the three major DEXs, Uniswap, SushiSwap, and Curve.

Although DEXs are highly anticipated, can DEXs really replace CEXs?

CZ, the founder of the largest CEX, said in an interview that he believes that one day DEXs will replace CEXs. However, currently, this day is still far away, because although CEXs have many drawbacks, DEXs also have many problems that need to be solved.

In September 2020, the share of DEXs reached its peak, and there has been no higher breakthrough since then. Even in the recent situation where Binance was FUDed crazily, the share of CEXs is still increasing.

2) Compliance War

In addition to DEXs, there is also a special type of exchange in the field of cryptocurrency exchanges-compliant exchanges.

In April 2021, Coinbase went public on Nasdaq.

A company based on decentralized assets has finally joined the centralized system, which many consider to be a “betrayal.”

But the founder of Coinbase said that Coinbase did not betray the cryptocurrency industry, but started a revolution within the traditional market.

Coinbase has always been a typical “good student” in the class.

Although Coinbase was established as early as 2012, it was surpassed by “junior brothers and sisters” one after another in the following years.

Because at the crossroads of speed and compliance, Coinbase chose compliance.

In obtaining regulatory licenses, Coinbase invested heavily, not only has transfer transaction licenses (Money Transmitter License) in 50 states in the United States, but also is one of the few exchanges that have been specifically issued by BitLicense in New York State for cryptocurrency exchanges.

Former Coinbase employees have revealed that at one point, the compliance team at Coinbase accounted for one-third of the company’s total workforce.

The cost of such compliance was limited supported cryptocurrencies and no derivatives trading, resulting in Coinbase’s trading volume and profits being far lower than those of its relatively non-compliant peers. Coinbase did not achieve profitability until 2017, and lost $30 million in 2019.

However, for Coinbase, being slow is fast.

After completing its compliance preparations, Coinbase finally entered a season of harvest.

In 2020, Coinbase had a net profit of $322 million.

In the first quarter of 2021, Coinbase’s performance exploded, with revenue of $1.8 billion, an 844% increase year-on-year, and a net profit of nearly $800 million.

Its unique regulatory position and growing influence have also given rise to the “Coinbase effect,” where the price of tokens often skyrockets when they are listed for trading on Coinbase, much like an enterprise IPO.

Coinbase’s business has now expanded to more than 100 countries, with more than 110 million users.

However, with only 100 million users, Coinbase founder Brian’s goal is far from being achieved. In 2016, he formulated a blueprint for the next decade, with the ultimate goal of creating a financial system that serves 1 billion people.

Binance, which also became successful thanks to the “regulatory dividend,” knows the importance of compliance as well.

After reaping the regulatory “dividend” in mainland China, Binance tried to land in Japan, but quickly withdrew after Japan tightened regulations. In March 2018, Binance headquarters moved to Malta, and in 2019, Binance.US was established specifically for U.S. users to avoid regulatory risks. Despite these efforts, Binance has been unable to avoid the pursuit of U.S. regulators for many years.

In 2021, South Korea also started a regulatory storm.

The Korean regulatory agency stipulated that cryptocurrency exchanges must obtain licenses by September 24, 2021, and ultimately dozens of exchanges that did not obtain licenses ceased operations. Only Upbit, Bithumb, Coinone, and Korbit have established partnerships with banks to support cryptocurrency trading in Korean won.

Strict regulatory measures have cut off the idea of many exchanges opening up the South Korean market, leaving the cryptocurrency market in South Korea long dominated by Upbit.

Looking back at this stage, the biggest change for cryptocurrency exchanges is a change in form.

The rise of DEX has brought unprecedented challenges to centralized exchanges, but behind the crisis lies opportunities. Binance introduced BSC, invested in PancakeSwap, and reaped the biggest dividends.

The emergence of DEX has made it possible for decentralized cryptocurrency assets to break away from centralized exchanges, but it still has a long way to go.

Within centralized exchanges, the struggle between compliant exchanges and “non-compliant” exchanges is becoming increasingly intense.

In a world controlled by sovereign states, cryptocurrencies are difficult to escape the influence of regulatory agencies in various countries. As the regulatory rules of various countries gradually become clear, compliance has become the basic threshold for the survival of exchanges, and even a “tool” for exchanges to fight against their opponents, such as FTX.

III. 2022-Present: Regulatory Storm1) FTX falls

In addition to Coinbase, there is another “good student” representative in the U.S. cryptocurrency market – FTX.

What SBF has done is not just compliance, but to expand the odds of winning against competitors by leveraging regulatory agencies.

Later, when Binance and FTX were at war, CZ hinted that SBF was using his relationship with regulatory agencies to attack Binance behind the scenes.

After the falling-out with CZ, SBF also vowed to “do everything possible to make Binance pay the price.”

The direct trigger for the falling-out between CZ and SBF was the license event in May 2021.

At that time, FTX applied for a cryptocurrency license for its subsidiary in Gibraltar and needed to submit information about its shareholders.

Between May and July 2021, FTX’s lawyers and consultants contacted Binance at least 20 times, asking for information related to CZ’s sources of wealth, banking relationships, and Binance’s ownership. Binance’s legal personnel responded to FTX, saying that the information requested was too broad and that it might not be possible to provide all the information.

According to CZ’s own disclosure, as an early investor, he became increasingly dissatisfied with SBF’s behavior and had the idea of ​​withdrawing from FTX.

With various contradictions and direct competition in business, the relationship between the two parties has been irreparable.

In July 2021, SBF repurchased FTX shares held by CZ for about US$2.1 billion, part of which was paid in FTT, the cryptocurrency issued by FTX. This was equivalent to giving CZ a timed bomb, laying the groundwork for the later battle between the two.

At this time, FTX was hot on Wall Street. In just half a year, FTX (including FTX US) completed a financing of US$2.12 billion.

Afterwards, on the one hand, SBF spent a lot of money on marketing, on the other hand, SBF actively approached regulators.

In the 2020 US presidential election, SBF personally donated 5.2 million US dollars to Biden, second only to the mayor of New York City.

In the US midterm elections, SBF also provided the Democratic Party with a donation of 39.8 million US dollars, becoming the second largest Democratic Party supporter after George Soros.

Of course, such a lot of money will not be without return.

After Biden was elected President of the United States, Gensler became the chairman of the SEC (US Securities and Exchange Commission), and Gensler’s former subordinates took up positions in companies under the SBF.

Starting in 2021, US regulatory agencies related to cryptocurrencies lined up to launch investigations into Binance. From the SEC to the US Department of Justice, the IRS, and the Commodity Futures Trading Commission, the charges ranged from tax, money laundering to insider trading, etc.

In 2022, when the market entered a bear market again, CZ ranked first on the list of cryptocurrency billionaires, followed closely by SBF.

However, while SBF was pressing hard outside, FTX was already on fire inside.

Similar to the former FCoin, FTX also has a bad debt. SBF used a large amount of FTX user funds to make up for the hole in his other company, Alameda.

On November 2, 2022, the media questioned the asset situation of Alameda, as 88% of Alameda’s net assets were FTX’s issued token FTT, which means that Alameda may become insolvent at any time if the FTT price drops significantly.

After the news came out, it caused widespread concern among investors. From November 2nd to 6th, the FTT price fell from $26 to $22. However, the situation was still relatively controllable at that time.

It was at this time when CZ appeared and dealt FTX a fatal blow.

CZ announced that he would sell all of his 23 million FTT worth $580 million due to recent risk events.

CZ’s selling spree greatly fueled panic in the market.

Alameda quickly responded by offering to buy all of CZ’s FTT at a price of $22. The FTT price temporarily stopped falling, but many people expressed doubt about whether Alameda could come up with so much money.

Before SBF could recover, a bigger bombshell hit. Someone revealed that FTX had about $16 billion in assets, of which $10 billion had been loaned to Alameda.

This completely ignited investor panic, with investors withdrawing funds from FTX one after another. In just one day on November 8th, FTX suffered a run of about $6 billion, was forced to suspend user withdrawals, and FTT prices plummeted by 25%.

At this point, CZ appeared again.

Just after midnight, SBF changed his tune and tweeted that he had reconciled with CZ, and that Binance was the first and last investor in FTX.

It should be noted that just a few days ago, SBF was still arrogantly mocking, “I can freely enter and exit Washington, but can others?”

CZ later confirmed that FTX suffered a run, and Binance intends to acquire FTX.

This was equivalent to a crisis for FTX, and as a result, FTT prices continued to plummet, falling to as low as $2.5. Within a day, the decline was close to 90%.

However, the reversal came quickly. Just a day later, CZ said he did his best, but FTX’s hole was too big to be acquired, and paired it with a crying emoji.

After losing the last straw, FTX had to declare bankruptcy.

Overnight, SBF’s net worth of hundreds of billions was completely reduced to zero.

But zeroing is not the end of the story. Even now, SBF is still running around, hoping to escape the disaster of prison.

After FTX went bankrupt, a large number of users and funds flowed into other exchanges. From the data, Binance is undoubtedly the biggest winner.

Before this storm, Binance’s market share was about 50%, and by the end of November, it had reached 80%.

2) Investigating Binance

Although FTX was defeated, Binance itself was also caught in a regulatory storm.

In December 2022, the media reported that the U.S. Department of Justice may file criminal charges against CZ and other executives.

After the news came out, it once again caused a market panic. The run on FTX that had occurred happened again on Binance, losing $1.85 billion in funds within a day.

In March 2023, the U.S. Commodity Futures Trading Commission officially sued Binance and CZ.

During this period, Binance was crazy about FUD, and CZ was “shot dead” by the FBI once again.

3) The Rise and Fall of BUSD

In addition to Binance, U.S. regulators also targeted the stablecoin supported by the world’s largest cryptocurrency exchange – BUSD.

When Facebook’s large stablecoin project Libra was blocked in 2019, Binance announced the Venus plan and became the “successor to Libra”.

Binance learned from Libra’s failure and focused on compliance. The stablecoin issuer with outstanding compliance performance-Blockingxos became the ideal compliant shell.

In 2019, Binance partnered with Blockingxos to issue the stablecoin BUSD.

BUSD, which broke through regulatory difficulties, soared all the way with the support of Binance’s strong ecosystem. By September 2022, the market value of BUSD was close to 20 billion U.S. dollars, standing alongside USDT and USDC.

In September 2022, Binance declared war on the second-largest stablecoin USDC.

In less than two months, the market value of BUSD exceeded 23 billion U.S. dollars.

At that time, FTX did not collapse, and SBF was still pointing the country and watching the show.

In just three years, BUSD defeated countless opponents and advanced to the top three. But just as BUSD was launching an attack on the stablecoin hegemony, in February 2023, with a ban by US regulatory agencies, BUSD hurriedly withdrew from the stablecoin competition stage.

4) Huobi’s Retreat

In October 2022, while BUSD was making rapid progress, Huobi quietly announced the delisting of the stablecoin HUSD jointly issued with Blockingxos.

In this round of cycles, Huobi lost not only this stablecoin war.

In 2014, Huobi rose to the top of the cryptocurrency exchange.

In 2017, facing the regulatory storm in mainland China, Huobi “went out to sea” and made a comeback.

However, Huobi has never truly gone abroad, or has never successfully gone abroad, despite Huobi obtaining some overseas compliance licenses.

In September 2021, Li Lin, who was in mainland China, announced that he would withdraw mainland Chinese users within the year and “survive by cutting off his arm”.

In September 2021, the trading volume of Huobi exceeded USD 200 billion. By January 2022, after clearing out mainland Chinese users, the trading volume had dropped to less than USD 68 billion. By September 2022, it had dropped to only USD 23 billion.

The “idealistic and passionate young man” finally gave up and sold Huobi. The one who took over was Sun Yuchen, who never misses an opportunity.

Apart from the usual “ride”, Sun Yuchen is also working hard to bring Huobi, which has already cleared out Chinese mainland users, back to the Chinese market by bypassing restrictions.

Looking back at this stage, regulation has been affecting the fate of major exchanges.

Huobi, which survived the last regulatory storm, was ultimately defeated by regulation. The disaster of FTX further highlighted the risks of centralized cryptocurrency exchanges lacking regulation, triggering widespread questioning. And the world’s largest cryptocurrency exchange, Binance, is now deeply mired in regulatory “quagmire.”

Fourth, the infinite war

Looking back at the 13-year history of exchanges, some exchanges have won by taking the underlying asset, such as OKCoin, which was the first to benefit from Litecoin, BitMEX, which was based on perpetual contracts, and Deribit, which was in the field of options. Some have become famous for their gameplay, such as Huobi, which started off by offering no transaction fees, Binance, which was the first to create platform coins and IEOs, FCoin, which became a universe giant by trading mining, and new exchanges that specialize in quantitative trading robots and distributed wallets.

However, gameplay and underlying assets may bring short-term heat to exchanges, seize segmented markets, but longer-term development still depends on product quality, user experience, and making fewer mistakes.

The collapse of Mentougou, the fleeting appearance of FCoin, and the collapse of FTX were not because their opponents were so powerful, but because the problems first arose internally.

Every giant that falls becomes an opportunity for other exchanges, just as the fall of Mentougou created opportunities for Huobi, OKCoin, and BTC China. After BTC China fell, users were divided among other exchanges. After FTX fell, Binance reaped the biggest rewards.

Security and compliance have always been the key factors affecting the life and death of exchanges. Numerous large exchanges that were once thriving have closed due to theft, while others like Bitfinex have managed to survive after being hacked. Compliance can make or break exchanges. It has helped to create exchanges such as Coinbase and Upbit, while also destroying others like BTCC and Huobi. Even the most powerful exchanges can’t escape the supervision of governments around the world. With the increasing strictness of cryptocurrency regulations in various countries, compliance has become a basic threshold for exchanges’ survival. Compliance can also be used as a “tool” to attack opponents.

Finally, there is the evolution of form. In the world of exchanges, in addition to centralized exchanges and DEXs, there are also wallets, and the boundaries between them are becoming increasingly blurred.

In 2020, MetaMask launched DEX aggregation services, and in January 2022, OKEx was renamed OKX, with one letter’s difference, reflecting the new situation of exchanges.

OKEx, which focuses on trading, has become OKX, which combines trading, wallets, DEXs, NFTs, and DApps. Wallets occupy a very important position in the field of cryptographic infrastructure, and major exchanges have also successively laid out their wallets. For example, Bitget and KuCoin have acquired or launched wallets to connect CeFi with DeFi. Head exchanges such as Binance and Coinbase have also launched official wallets, and their goals are not limited to trading.

As the most profitable business in the industry, the cryptocurrency exchange field is in fierce competition all the time. The war between exchanges has spread from the earliest spot trading to derivatives, NFTs, and wallets. However, cryptocurrency has not truly entered the mainstream yet, and the regulatory wave in the United States has just begun. The war among cryptocurrency exchanges is far from over, and new opportunities will continue to emerge in this field in the future.

Video version of this content: https://www.youtube.com/watch?v=m5ZxyuD4k8Q