Changpeng Zhao’s Binance KR: two sides of the Crypto Exchange Localization Strategy

By Sejin Kim   Posted: 2020-04-17

Interview with Changpeng Zhao, a CEO of Binance
“Expanding the Cloud Exchange to the world...Will be Testing Profitability of Each Service.”
Investor Protection and Local Partner-dependent Structure Might be its Drawbacks

Attempts to find Profit models continue throughout the Blockchain and Cryptocurrency Industries. This is because cryptocurrency transaction fees, which were almost the only profit model in the industry, plunged along with falling cryptocurrency prices. Binance, the world’s top cryptocurrency Exchange, which pioneered a funding method called Initial Exchange Offering(IEO) with ‘Binance Launchpad’ last year, is also seeking future revenue sources in response to such an environment.

Binance’s strategy this year is to expand globally through Cloud solutions. One of the examples of this strategy is Binance KR, a cloud Exchange recently established in South Korea. It aims to increase contacts with users from around the world through local-friendly Exchanges and discover new profit models through how they respond to Binance’s services. 

Changpeng Zhao(CZ) CEO of Binance, said in a joint interview with the Blockchain Media Association on July 7th, “We are seeking to launch services in various areas such as payment, remittance, investment, finance, games and retail. I’m still keeping an eye on it because I don’t know which one will be the one,” he said. However, he was reluctant to comment on how to comply with local regulations or protect investors under the localized cloud Exchange system.

Binance’s Search for Future Growth Engine: Local Exchange + Cloud

Changpeng Zhao’s decided to find Binance’s profit model by expanding the local Exchange through cloud solutions. It plans to establish Exchanges that support legal currency in countries around the world with cloud solutions, expand user contacts to provide various services on Binance, and find profitable models through users’ responses. Changpeng Zhao said, “We have made such attempts as Decentralized Exchange(DEX), Binance Coin(BNB), and Launchpad, but the most important thing we see this year is securing the local Exchanges.”

Binance cloud solution is an Exchange-making solution designed for Binance’s overseas expansion. Binance supports its cryptocurrency, legal currency trading functions, transaction liquidity, matching engines, multinational language functions, security systems, and collaboration opportunities within the Binance ecosystem for cloud Exchanges established in countries around the world. “Although we currently provide FIAT and cryptocurrency trading functions in cloud solutions, we are also planning to add interest-earning products such as lunchpads, staking, and mining in the future,” CEO Zhao said.

Binance KR, recently established in Korea, is the first cloud Exchange created by Binance under this plan. He said that he “chose the cloud method to provide optimized services to South Korea using Binance’s technology, regulations and liquidity”, adding that he “wanted to give Korean users another option through localized Binance KR.”

Local companies are responsible for investors protection

However, there is also a blind spot in Binance’s “easily” established localized Exchanges using the cloud. Notably that Binance has fully delegated local regulatory compliance and investor protection measures to its local partner companies. If a partner company is negligent in complying with local regulations or lacks capabilities, investors who trusted the brand Binance might suffer from unforeseen problems.

For example, Binance KR, also known as Binance’s Korean Exchange, is operated by Binance LTD., which is in charge of complying with the Korean regulations, establishing investor protection measures, and operating BKRW. Binance LTD. is run by its Korean partner BXB, which is a separate company from Binance.

However, since its inception, BXB has been controversial by supporting the Won’s transaction in a similar way to honeycomb accounts, which bypasses the “Real-name account” system in Korea. In Binance KR, BKRW Market transactions are supported by Binance KR and Exchanges between BKRW and the Won are supported by BXB. Critics point out that the reason for separating the two methods was an expedient to avoid criticism for using honeycomb accounts to support the Won’s transactions.

Despite the mounting questions about local partner companies, CEO Changpeng Zhao maintained a plan that local partner companies will be in charge of complying with local regulations and protecting investors on overseas Exchanges. Regarding Binance KR, he said, “it is an Exchange that borrowed the Binance brand”, making it clear that “Binance and Binance KR are separate companies.” Also, regarding the compliance with regulations in Korea and the investor protection, he adds that “BXB is fully in charge of them. As far as I know, BKRW is held by a company separate from Binance and it follows strict regulations,” avoiding an immediate answer.

CZ, meanwhile, hinted at the possibility of further M&As at home and abroad. It is their policy to actively consider M&A and investment if someone has products that can enhance users’ access to cryptocurrency. He said, “There are plans to invest or acquire Korean companies other than BXB, including some Korean Exchanges that are under discussion.”

[Reported by Sejin Kim, Reviewed by Byunghoon Chung]