FTC v. Binance: An Overview of Binance

V. FACTS

A. Overview of the Binance Platform and Operations

40. Binance is a centralized, web-based “crypto-products platform” that has offered trading in digital asset commodities and related derivatives, among other financial products and services, to over 100 million customers throughout the world, including in the United States. Binance holds itself out as the world’s “largest crypto exchange by trade volume” and is reported to have amassed over half the global market share for digital asset exchange activity as of the end of 2022.

41. Beginning with its launch in July 2017, Binance has offered customers transactions in digital asset spot markets. In July 2019, Binance began offering its customers leverage with which to trade in its digital asset spot markets. According to Binance, its two most heavily traded digital assets in its spot markets are BTC and ETH. In September 2019, Binance began offering digital asset derivative products. Binance’s most heavily traded derivative products incorporate BTC or ETH as underlying assets.

42. Although Binance now offers numerous financial products, its core offering is to act as a centralized trading platform at which market participants (i.e. customers) may transact in digital assets or digital asset derivatives by transmitting orders to buy or sell into what Binance calls order books. Binance’s order book-based markets execute transactions based generally on price-time priority pursuant to non-discretionary order matching methodology.

43. Customers may also purchase and trade digital assets on Binance through other trading protocols, including bilateral transactions (also called “OTC”) in which Binance acts as one counterparty to the trade. Binance customers can also acquire digital assets directly from Binance through Binance’s “Buy Crypto” functionality.

44. Binance customers may place orders through the user interface available at www.binance.com, through the Binance mobile application, and by direct connection to Binance’s matching engines via the Binance application programming interface (“API”). API connections are generally used by more technologically sophisticated customers, such as proprietary trading firms or other institutional market participants.

45. Among other sources of revenue, Binance makes money by charging its customers transaction fees for trades made on its platform. Transaction fees vary based on the product and the customer’s trading volume, and are Binance’s largest source of revenue. In a December 2022 interview, Zhao estimated that transaction revenue accounts for approximately 90 percent of Binance’s revenue. A meaningful percentage of that revenue has been and continues to be derived from digital asset derivative transactions entered into by U.S. customers, including customers in

this District.

46. Binance launched its own digital asset called the Binance Coin (BNB) through an initial coin offering in 2017. Customers can trade BNB like any other digital asset on Binance and Binance incentivizes its users to purchase, use, and hold BNB tokens. For example, Binance customers that elect to pay their trading fees using BNB receive a discount for doing so. BNB holdings are one criterion for customers to gain VIP status, which as described below confers benefits on the customer including lower transaction fees.

47. Since approximately September 2019, Binance has offered BUSD, a proprietary stablecoin. At least prior to February 21, 2023, it did so through a contract with Paxos Trust Company LLC (“Paxos”), a New York trust company. Binance has represented that BUSD is “compliant with [] strict regulatory standards.”

48. Binance refers to its important customers as VIPs. Binance’s VIP customers are often institutional market participants. VIP customers are important to Binance because they provide liquidity to Binance’s markets and pay Binance a lot of fees. Binance is aware of its VIPs’ identities and geographic locations because Binance monitors its sources of transaction volume and fee based revenue as a matter of course in conducting its operations.

49. Binance’s VIP program rewards important customers by providing reduced rates for transaction fees and white-glove customer service, as well as exceptions to Binance’s trading rules including order messaging limits. Higher status VIPs also receive preferential access to Binance’s matching engines, among other benefits. Binance categorizes its VIPs into levels one to nine, with VIP 9 being the highest level occupied by the most important Binance customers. A customer’s VIP level is determined by, among other things, their 30-day trading volume and BNB holdings. For example, in December 2021, a customer could maintain a VIP 9 level by engaging in “futures trading” volume of 25,000,000,000 (as measured by BUSD) and maintaining a 5,500 BNB balance over a 30-day period.

50. Binance has relied on a dedicated team of employees and other agents to provide personalized service to its VIP customers. These personnel have been known by various labels including the VIP team, Key Account Managers, and institutional sales representatives.

51. Another important benefit that Binance has provided its VIP customers is prompt notification of any law enforcement inquiry concerning their account. According to a policy titled “For management of LE requests for information and funds transfer,” created by Lim based on directions from Zhao, Binance instructed its VIP team to notify a customer

[A]t point of [account] freeze [based on a request from a law enforcement agency] and immediately after the unfreeze [which would occur 24 hours after the account freeze]. VIP team is to contact the user through all available means (text, phone) to inform him/her that his account has been frozen or unfrozen. Do not directly tell the user to run, just tell them their account has been unfrozen and it was investigated by XXX. If the user is a big trader, or a smart one, he/she will get the hint.

52. Binance officers, employees, and agents have used numerous messaging applications for business communications during the Relevant Period. In addition to email and internal messaging applications, Binance’s personnel have also used at least Telegram, WeChat, and Signal to communicate internally and with Binance customers.

53. The Signal messaging application allows a user to enable an auto-delete functionality to cover their tracks after communicating about inculpatory matters. Zhao and others acting on behalf of Binance have used Signal—with its auto-delete functionality enabled—to engage in business communications, even after Binance received document requests from the CFTC and after Binance purportedly distributed document preservation notices to its personnel.

54. Zhao has communicated over Signal with the auto-delete functionality enabled with numerous Binance officers, employees, and agents for widely varying purposes. For example, the following Signal text chains or group chats collected from Zhao’s telephone were among those set to auto-delete:

a. a group chat between Zhao, Binance’s then-head of institutional sales, and Binance’s head of “Big Data,” which is the operational group responsible for creating and maintaining Binance’s data and databases including the database that contains customer- and transaction-related information;

b. a text chain with a senior member of Binance’s VIP team;

c. a text chain with a compliance consultant who participated in the creation of the strategy concerning the launch of Binance.US and Binance’s attendant efforts to retain U.S. customers;

d. a text chain with an accounting employee who participated in the preparation of Binance’s monthly revenue reports for Zhao;

e. text chains with senior operations personnel; and

f. group chats titled “Finance,” “HR,” “Mkt hr,” and “CEO office.”

55. Zhao has also instructed Binance officers, employees, and agents to use Signal to communicate with U.S. customers. On information and belief, Binance does not have a corporate communications policy and continues to use Signal for business communications.