Building A New Global Financial System with CZ of Binance

Public blockchains and cryptocurrencies have facilitated innovation and economic growth around the world for more than a decade. Now, regulators and policymakers are considering how to interact with this emerging global financial system, as businesses and participants reap the benefits of improved efficiency and broadening financial inclusion.

 With more education, governments are becoming less resistant and more aware of crypto as they develop an understanding of its potential, long term impact on global finance. Some countries are now embracing the disruption and aiming to attract companies that will help to form this new system in order to remain relevant in the future of money.

Joining us this week to explore this topic is CZ, Founder and CEO at Binance. CZ rose through the ranks to a management position at Bloomberg, then founded Fusion System, a high-frequency trading tool for brokers. He was introduced to Bitcoin in 2013, and after a brief stint with, joined OKCoin as the company's CTO. CZ launched Binance in July 2017 after raising $15 million, and Binance is now one of the world's largest crypto exchanges.

Jeremy Allaire: Hello, this is Jeremy Allaire, and welcome to The Money Movement. I'm super, super thrilled to be joined here today with CZ and looking forward to having a great conversation. Welcome, CZ.

CZ: Hey, Jeremy. Good to be here. Thanks for having me.

Jeremy: Absolutely. I want to start maybe stepping back a little bit and a little bit of this is maybe asking you about some of your own inspirations and some of this is also relatedly just thinking about your own visions for the future. I think all of us have our own stories for what we believe, why we're in this industry. I think we all are here because we think there's an opportunity to build a new global financial system, a new economic system, a new way that economic activity in the world can happen.

I'd love to hear from you. What do you feel crypto, this broad-based technology, what do you think this is bringing to the world? How's the world going to be different in the coming years, in the coming decade as a result of what's happening with crypto?

CZ: Fundamentally, I think crypto blockchain is a new technology. It's a new technology for a ledger system for a trust-building but the first application is really just money. Just like internet can do many different things but the first application is just for information exchange. I think with crypto, we can really improve the money that we have, and then when you improve the money, you improve the financial sector, then you improve the FinTech and then you improve every other sector.

I think we have many drawbacks on the current money system that we have. It's not very easy to do cross-border transactions, it's not very easy to do large transactions, small transactions. I think for me, we just want to increase the freedom of that, freedom of money, and while hopefully not sacrificing compliance, safety, security, ease of use, et cetera. That's really what we've tried to contribute to. Then we want to provide people access to this new technology and that's what we're trying to do.

Jeremy: It makes sense. I think when we got started in this a while ago, there's this concept that if you could make it so that money work the same way that the rest of the internet worked and you could move value in that way and then, in turn, you can enable that value to be programmed, so programmable money, these ideas that you could actually rethink the building blocks of economic activity. I'm interested to hear your thoughts on the growth in crypto native corporate forms, crypto native organization forms.

I think one of the things that I'm really excited about is the current global system of economic activity is, in many ways, it's organized around nation-state rules and multinational corporate law. The essence of it is this. Then all these siloed financial systems within that and there's on a public blockchain where you have the ability to not just the ledger but the ability to have governance, other things. We're seeing the development of new corporate firms.

A lot of these projects, we can call them projects, we can call them DAO, we can call them whatever we want to call them, a lot of these projects, I think the people who are building them are inspired that there's a new way to organize work, a new way to organize capital. I think many of those projects, I think Binance has played a really big role in supporting them. How do you think about these new organizational forums? How do you see that evolving five years from now? What does the world look like for how people organize, as I like to say, capital and labor using blockchains?

CZ: I think you touched on a lot of really interesting concepts or topics and they're not just concepts now. Binance, when we first started, we started as a decentralized organization and we're not fully decentralized. We're not a DAO. We don't use the word company, we use the word team because even the word company, the word nation, states, those are just concepts made by people. When you strip away the terminology and you look at how those things actually work, it's just a team of guys who work together and they have an incentive structure and they have trust.

They believe they do some work for you and they will get paid or they will get the benefits, they will get a portion of what's promised whether it's ESOPs or shares or tokens, et cetera. Binance is a very prime example. When we first started, Binance is probably one of the first startups in terms of a company form that started in 180 different countries and owned simultaneously. That's thanks to the internet and the blockchain. Both does not have this concept of borders. When we first started, we were like a crypto-to-crypto-only exchange. People deposit via the blockchain, withdraw by the blockchain, and that's it.

We could have hundreds and today thousands of people working in all different parts of the world. As long as they have the trust, we have a piece of paper saying, look, this is your employment agreement, this is what you do and this is how much you get paid and this is how much shares or ESOPs or tokens you have in the company. As long as people have that trust, they no longer need a legal piece of paper, et cetera. You don't have to have a company, an office, a headquarter. Those are things typically associated with a company or with organizational form. Then we actually work pretty well.

We only became more centralized recently because now, when we want to touch the traditional financial systems, when we want to integrate with banks and they want to see licenses, they want to see company formations, they want to see financial statements for three years. When we want to apply for licenses, they want to see the headquarters, the company registration. Then we have to centralize and then form those things that we didn't really need, just from our perspective, but the regulators want to see it, so we're forming those things.

Today, it's totally possible to organize organizations without the traditional structures, and because now you can pay people using blockchain, you can have contracts, either smart or dumb contracts. Then this brings the next step, which is for any type of organization, including nations, states, could be organized this way. Those nations, states, or religion, they're all just concepts. They don't exist theoretically in the physical form.

Even physical borders are just people because people put a guard there and people put an immigration office there. All of those things are man-made stuff. Like the fundamental social contracts. If you live in a country, you're supposed to pay some taxes, you use the public services, et cetera. All of those things can be constructed without a new form now with a blockchain technology. The limitations are limitless. I can talk about it forever.

Jeremy: No, this is also for me the thing I'm most excited about in many ways is I think a lot of times when people are thinking about blockchain and they're thinking about crypto, they get very narrowly focused on, "Oh, this is all about Bitcoin or this is all about making payments faster or cheaper or whatever." When people ask about USDC, a lot of times it's like, "Okay, well, this is like a new payment system."

Yes, that's true but actually, the deeper meaning here is that this new public good, this new public infrastructure that's out there, these public chains that provide incontrovertible data, computation, and the ability to create mechanisms of governance, they're the building blocks for economic activity more broadly and economic activity is just these collections of microeconomic units of organization and then the interactions between those. I really think of this as like, they're going to be new global, I call them corporate forms. I agree with you. I think these words have so much implied meaning, you have to throw them out a little bit.

These new organizational forms that are going to move with a lot of velocity, that will be inherently global, that will be able to bring in labor, create output, interact, and my own theory is, five years from now, that many of the highest growth organizations in the world are going to be these on chain organizations. Yet the interface layer between the legal system, the regulatory system, that's very real but I think those problems can be solved. They really can be solved. It's exciting. I always wonder, right now, a lot of DAO's, they're focused on investing or owning digital content like NFTs or producing protocols, producing software.

I'm excited about labor and capital coming together to actually produce goods. It'll be interesting to see when DAO's start to emerge that actually produce physical goods and find ways to do that. That'll be I think a big breakthrough potentially as well. I know for Circle and I know increasingly also for Binance, we spent a lot of time educating governments about the technology, about the opportunity, and I know that's something that you care a lot about and are investing a lot of energy in. As you travel the world and spend time, what are you hearing, I'd be interested to hear, what are you hearing and what do you say?

CZ: I'll talk what I say first. Depending on the understanding level of my audience, of the person I'm speaking to, there's a wide range. Some people still think Bitcoin still only used by drug lords. They're just misinformed. Some people view this is the future technology for money and this is going to be power the future of FinTech, which is going to be important for every economic sector that they have. That's the majority of people now.

Jeremy: It's changed a lot.

CZ: It's changed a lot. All of them want to have some way of attracting the industry into the local economy but without causing trouble, without pissing off other bigger governments viewed as the outlier, et cetera. There's always some balances. It's interesting that in places where the traditional financial sectors are very established, like the financial hubs, they're actually more resistant to this change because they need to protect the existing banks, financial institutions, et cetera.

Whereas, for example, in many countries in Latin America, which I was in last month, many of them use the US dollar. They don't have their own currency to protect. There was 30% population banked. They don't really have anything to protect.

Jeremy: In some ways, they can do the leapfrogging, right?

CZ: Yes.

Jeremy: They can say, "Oh, wow, this is a more advanced financial system. This is a more advanced economic engine. This is a more advanced capital market structure." They look at that, and they look at that the benefits for their society and say, "Why don't we just go right to that?" It's fascinating.

CZ: That's more at a high-level strategic discussion, and then there's usually a more direct discussion. We can just create jobs. We can pay taxes. We can bring other crypto players into the local economy. Those are companies that will hire people and more importantly, that builds the talent pool in the local economy, which will be very beneficial for the future of that economy.

If you look at internet, to be very frank with you, today, if you look at the top richest people in the world, the top 10, and 9 out of the top 10 are in the US, 8 out of the top 10 are internet companies, the Google, Facebook, Tesla, Amazon. US have really done well for the internet. Internet is borderless. A few companies provides the internet infrastructure for all of the world except China. China have their own thing.

With a blockchain, I think similar things could happen. A few companies can provide a lot of tools people use for the blockchain world. I think many smart countries want to attract those companies. Now there should be a competition. The governments don't want to move first because being a regulator if you're only in office for four years, you don't want to deal with all the pressure of other people.

There's a very strong, a game of chicken kind of effect. Nobody wants to move first until somebody moves, and then nobody wants to move last. I was talking with my friend, and he says he still foresees five to seven years for countries all around the world to adopt this thing. I'm like, "No, you don't understand governments. If nobody moved yet, it may take longer than 5 to 10 years." Now a number of governments have moved, no one wants to be last.

US or [unintelligible 00:12:51] executive order like a month ago, if you bypassed crypto laws UK wants to be a crypto hub now, El Salvaldor is way ahead. Now suddenly, and now if you're in a regulator and a government that says we want to adopt crypto, you no longer have that risk. Your neck is not out there. Everyone else is doing [unintelligible 00:13:11] want to be the last.

Jeremy: It's like the signaling is starting to be this isn't just all about regulatory risk, this is now about opportunity. Like you said, the White House is a great example of that. I have put a lot of blood, sweat, and tears into Washington, DC over the years. I keep telling people it's really different where we were nine years ago, and where we are today. Just really the openness. We talk about, it's not the best analogy, but people talk about a digital currency space race which is this idea that nations are in a race to embrace what this is because it's about national, economic, competitive advantage, and things like that.

We're definitely seeing that. In some ways, governments are starting with things like, "Okay, how do we understand a well-run regulated stable coin that is a building block for this financial system?" We're seeing a lot of regulatory clarity on those things, which is good. I think one of the things that I think also happening is, there is this bigger set of the geopolitical and essentially this sense that there is a change in the geo-economic structure that's happening.

We're in the middle of that change, the outcome and the new order, if there is ultimately a new order, it's not clear yet. Obviously, some of this has been brewing for a long time. In fact, a lot of people who got into bitcoin as well saw this brewing after the financial crisis. Some of this has been brewing with the rise of China for a long time. Now, with, we call it the new Cold War, or this new geopolitical situation, the geoeconomic order is changing.

Everyone seems to see that somehow, crypto and digital currency is going to play a big role in that reconfiguration. Even Secretary Janet Yellen who gave a speech yesterday and was talking about this, people are talking about that, which is amazing. I used to say things like this seven, eight years ago at conferences, and I would get booed off the stage, because there used to be like, "No, no, no, the government is involved in this. This is going to be terrible."

This is a sign of maturity. I'm interested to hear your thoughts on what role can crypto play in actually helping with keeping the world globally integrated because for me, that's what is motivating is like, how can we have a platform, an open common platform in the world that connects people financially and economically. A lot of the narrative on the impact of these geopolitical, geo-economic things is like, there's going to be this power center or this power center. Maybe that's true, but I'm interested in if you think there's a message to the world for how crypto and blockchain and digital currency can keep the world well-integrated in a sense.

CZ: Yes. I think this is a very interesting and delicate topic. The world definitely is changing and the world is breaking apart, and there's different factions, et cetera. Then every country has a different situation to think about. Money is a very strong tool for governments to influence each other, the geopolitics, et cetera. US dollar is one of the strongest tools that US has.

To be honest, maybe this is why China wants RMB to be the global dominant currency. Bigger countries have that ambition, which causes friction at certain points. Then you have the escalating tensions between Russia, now it's a war, Russia, Ukraine, and then now sanctions, et cetera. The world is becoming more divided. When the world becomes more divided, guess what? People will tend to try to use the currency as a tool to influence rather the sanctions, and et cetera. When you do that a lot, people look for a neutral thing to use, which is cryptocurrency.

Cryptocurrencies bitcoin is very neutral. It doesn't belong to any country. No one can mint more of it. There's no inflation. It's the most neutral thing. Then for businesses that want to do business globally, that doesn't want to get stuck and get the bank accounts frozen by this country, that country, guess what? Use the neutral technology. There's a neutral technology for money.

That I think will solve a lot of problems for many people. Some people will take a different view. Some countries will view that taking their power away. It does to some extent, but it also offers a better alternative for people to do things in a neutral way. There's different aspects of it. US portfolio and in particular, have to think about, hey, does this decrease the influence of US dollars globally, which it probably does to be very frank.

US can fight it for a long time. If you keep fighting it, and this thing will develop for the rest of the world, you can protect the US dollars for a slightly longer period of time, but then the rest of the world is probably going to move to crypto. Then later on, you're not only in the long term, you cannot protect US dollars forever, most likely. Then you don't have a future. If you look 10, 20 years down the road, if you don't own the future, then that will be a reorder.

Whereas today, if you're willing to disrupt yourself, you say, "Look, today, the disruption is still pretty small." I think Janet Yellen, said it very well. Let's embrace this technology. Now we disrupt ourselves in small scale and constantly over time but then we have the future. United States pretty much owns the internet today, you could own the blockchain in the future as well.

Jeremy: That's the conversation. I think we've been talking a lot about digital currency dollars. Obviously, that's what we do. I think this is now become something, it is viewed as wait a minute, crypto dollars are actually really strategically important and having a digital currency dollar that can scale and operate around the world, it becomes a strategic priority. I actually had a guest yesterday and was talking to them and I'll ask you the same question, which is just imagine you're sitting here and you've got Secretary Yellen and you've got Secretary of State Blinken and National Security Council Head Jake Sullivan and Attorney General Merrick Garland. You've got this cabinet of the US, and you're sitting with them. What's your message to them about what this can mean for the United States, but also, how Binance can be an important player in that?

CZ: Sure, I think the concept is very simple. Let's say we go back 50 years or 100 years, you have the best army in the world, you have the strongest army. Now there's airplanes, do you invest in airplanes or do you not invest in airplanes or do you just want to hold on to the army? You got to invest in airplanes so that the airplanes may make your army quite a bit obsolete, not completely obsolete, but though you will have significant disruptions, but you got to have the new technology.

Any country, any state, any economy that doesn't embrace new technologies is going to be left behind. When you embrace new technologies, you will have disruptions. You will cause some pain for the existing incumbents, and hopefully, those incumbents can embrace new technologies. There's no reason why banks couldn't provide access to cryptocurrencies. There's no reason why bookstores couldn't offer e-commerce. They should have done that. How do you embrace new technology?

As US own the internet, how does the US own the internet? They own the companies that provide the tools for people to use the internet. US should embrace the companies that provide these tools, Binance is one of them. Binance is one of the largest players in the space. We already have a presence in the US, but in the US, to be very frank, US have the best banking support for exchange businesses. Now, there's ACH integration, we can deduct money from the user's account every month, which is fantastic.

US is quite cautious on derivative products, interest-generating products, many newer form of products. I think, basically, at this stage, I think US should care about two things, anti-money terrorists, anti-money laundering, KYC, that's very important for the United States. That's clear. Also, let's fight bad players. Any scammers, hackers, illicit data fraud, just any criminal. We want to protect consumers. Other than that, we should to the maximum [unintelligible 00:22:09] let the industry players develop, have favorable policies that attract international players, local players to the industry.

I think that's where Binance fit in. It's very simple in concept. In practice, there's a lot of little balances you need to do, which is quite difficult.

Jeremy: I'm familiar. Awesome. Cool. CZ, we could talk for a long time. These are really enjoyable conversations, and I'm really grateful that you could come on and have this conversation today. Thank you so much for joining.

CZ: Thanks for having me. I also want to say thank you for all you do in the United States. You guys are doing a lot more in pushing the US adoption and whereas we're doing more on internationally, but hopefully, Binance US will be able to do more in the US going forward as well.

Jeremy: Absolutely. We're supportive.

CZ: Thank you so much. Cheers.

Jeremy: Thank you, CZ.

Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Founder & CEO
 at Binance

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