Dialogue He Yi: Global regulatory trends are inevitable, with training for senior executives

Original: Bloomberg

Compiled by: Odaily Planet Daily

Yi He is one of the most influential figures in the $1.2 trillion cryptocurrency market, and today, the exchange Binance, which she co-founded with CZ (Changpeng Zhao), is facing numerous challenges.

Over the past six years, even as governments around the world have intensified their crackdowns on cryptocurrencies, one Binance executive has successfully maintained a low profile while continuing to exert influence—Yi He.

As one of the co-founders of this troubled digital currency empire, she is one of the most powerful figures in this $1.2 trillion industry. With increasing regulatory pressure and a deepening survival crisis for the largest cryptocurrency exchange, she is also facing significant losses.

After successfully marketing Binance through media platforms in its early days, Yi He, a former television host in China, played a crucial role in its rapid rise. Now, she faces the most dangerous moment in the company's history, as it remains a dominant force in token trading, venture capital, and digital art. U.S. financial regulators have accused Binance of operating illegally, violating trading rules, and failing to meet compliance requirements, while it also faces scrutiny elsewhere, from France to Australia.

As the company's dominant market share comes under pressure, senior executives are facing significant risks. According to the Bloomberg Billionaires Index, CEO and co-founder Changpeng Zhao (CZ) has an estimated net worth of about $29 billion, while Yi He also enjoys substantial wealth as an early shareholder (the scale of her holdings has not been disclosed). The couple shares their wealth in multiple ways: they are partners in both business and life and have children together.

In a series of interviews with Bloomberg, including one just before the new lawsuit from the U.S. SEC in Dubai, Yi He attempted to convey two important messages. First, there may not be as much of a divide between Binance and regulators as some believe. Second, the company is far from the villainous image that critics claim. "If they really took the time to understand our industry, they would find that if Binance is not compliant, almost no other global trading platform or offshore company is compliant," she stated last month at the five-star Address Fountain Views hotel in downtown Dubai. Binance is known for having no formal headquarters, which theoretically makes it harder to sue and regulate, but Yi He and Changpeng Zhao have established a foundation for growth in this Gulf city. Some have compared her relationship with the Binance CEO to that of SBF and Caroline Ellison of the now-failed FTX. Yi He firmly denied such comparisons. (More on this later.)

In the face of the latest U.S. accusations, marking the end of the laissez-faire era for cryptocurrencies, Yi He adopted a more conciliatory tone in subsequent WhatsApp messages. "We respect the regulators' stance, whether they support or oppose the development of cryptocurrencies," she said. "I understand that the overall intent of regulation is to protect investors." It is important to clarify that Binance is not the only company feeling the pressure. The U.S. SEC has also accused major platforms, including Coinbase Global Inc. and Kraken, of violating securities regulations. However, the allegations against Binance are unique in their scope and severity. U.S. officials have stated 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 U.S. platform will sever ties with the banking system. Similar banking-related issues are also affecting the company's operations in other regions.

Investigations by U.S. authorities do not always lead to charges against individuals or companies. The Department of Justice has yet to announce any cases against Binance, Changpeng Zhao, or other executives. A spokesperson for Binance referred Bloomberg's inquiries to the company's response to the SEC complaint earlier this month. Binance described these regulatory actions as disappointing and vowed to defend its rights, claiming that customer funds have never been at risk on its platform.

Behind the scenes, Yi He's influence permeates 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 the multi-billion dollar venture capital fund Binance Labs, which has supported over 200 projects, including the decentralized file-sharing platform BitTorrent and the blockchain gaming leader Axie Infinity. She is credited with driving the growth of the BNB Chain initiated by Binance, whose native token was recently labeled an unregistered security by the SEC. She also assists in overseeing institutional client business and acquisitions such as CoinMarketCap.

The reason is that she has never become the face of Binance. This is a weakness she has mentioned multiple times in interviews with Bloomberg, including one that lasted over three hours and was conducted in Mandarin. However, the company's executives have consistently tried to downplay its ties to China, as the country has 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 Yi He's involvement in the early days of Binance can be found in the case brought against the exchange by the U.S. Securities and Exchange Commission (SEC). According to a transcript of audio released on June 6, 2019, a speaker identified as Zhao referred to Yi He as part of the decision-making process to circumvent restrictions, allowing U.S. users to access the larger Binance exchange.

For critics, Binance still operates like a startup, with a governance and ownership structure shrouded in mystery, and its commitment to millions of users can be simplified to: you can trust us. However, in Yi He's view, the transparency Binance provides exceeds the criticisms leveled against it, and the company has consistently cooperated with U.S. regulators, who have raised objections.

"The trend of global regulation is inevitable," she said. "You can't solve this issue by shouting 'fight' a few times." Yi He did not respond to the SEC's allegations regarding market makers.

Unlike the accusations against FTX, she emphasized that Binance has not touched user funds for its own use, nor has it used its own token BNB as collateral for loans.

Speculation about the end of the Changpeng Zhao era is intensifying. Although he has expressed no intention of relinquishing power in the near term, it now seems a distinct possibility. When asked about Binance without her and Changpeng Zhao, Yi He stated that each of them has senior executives trained as backups but declined to disclose their names. "I think we will be fine. We are not a single point of failure."

Unlike the practice on Wall Street, where transactions are conducted through a series of intermediaries, CEX can handle everything from matching orders to the custody of customer assets, which exposes investors to potential conflicts of interest and counterparty risks. As scrutiny of cryptocurrency businesses intensifies, Binance has increased the number of compliance personnel to improve its image. However, according to industry expert CCData, its trading share in derivatives and spot markets has declined from earlier peaks this year.

"Binance is at a disadvantage," said Austin Campbell, a part-time professor at Columbia Business School who previously worked at Paxos, which issued Binance's branded stablecoin BUSD. "Western regulators are cracking down on this business model—either you have a completely independent custodian, or you have stricter regulations on asset custody, user fund handling, and responsibility bundling."

When Yi He first entered the cryptocurrency space at OKCoin in 2014, China was 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, she hired CZ as the chief technology officer, based on his years of experience in trading system engineering, including his work at Bloomberg LP (the parent company of Bloomberg News).

When CZ invited Yi He to become an advisor to Binance in 2017, she had already left the cryptocurrency industry and 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 Binance. Technically, unlike most co-founders, she was not part of Binance at its inception. However, those familiar with its early lore generally agree that her reputation in the Chinese cryptocurrency community was crucial to its immediate success, as the exchange was still an upstart compared to exchanges like OKCoin.

Six years later, the cryptocurrency industry is being punished for being seen as a hotbed of illegal activity, and Binance has become a target due to its obsession with market share. To some extent, it has become the Robinhood before Robinhood. For example, until mid-2021, users could withdraw up to two bitcoins without providing any identification. It also listed some tokens that proved to be failures, including the TerraUSD algorithmic stablecoin that went bankrupt last year. For critics of cryptocurrencies, Binance profited by selling tokens to individual speculators who barely understood them.

There is also an elephant in the room: CZ and Yi He have children together—this is a secret known among those in the cryptocurrency community. How would she describe their relationship? She declined to answer.

"What do they call it in the entertainment industry? CP?" she said, referring to a meaningful term on the Chinese internet where fans hope for a romantic relationship between two people, whether on-screen or in real life. (In the West, this is called "shipping.") She also referred to CZ as her comrade, then likened him to a college roommate. She said their connection only began after she joined Binance. Yi He compared it to Amazon, suggesting that she was like MacKenzie Scott, Jeff Bezos's ex-wife, who contributed to the company in its early days. She acknowledged that this is not a "perfect" example, and among other reasons, the analogy is questionable because Scott was not as deeply involved in Amazon's billion-dollar business as Yi He is with Binance.

Regarding the comparison to SBF and Ellison, Yi He emphasized the differences.

"There is a significant distinction here: Caroline is an employee, while I am a partner." "Partnership requires more than a dating relationship. A partnership is about camaraderie, while a dating relationship is about chemistry. The former is based on shared beliefs and transcends gender, while the latter is based on physical attraction and selfish desires."

Yi He also pointed out that she, as a pioneer in cryptocurrency, predates CZ. "Even without considering personal relationships, I am the one who introduced CZ to the cryptocurrency trading business," she said. "CZ 'brought me to Binance' is based on the achievements I have already made," she added.

But for regulators concerned about power blurring and concentration, this situation raises alarms. She simultaneously oversees Binance's department that invests in crypto projects and the department that decides which projects to list. According to Vishal Sacheendran, a director at Binance, the token listing team she oversees has remained quite secretive, with even few internal personnel knowing its members. The company states this is to reduce potential conflicts of interest. However, after the collapse of FTX, this business model was partially blamed for the lack of transparency in the intricate relationships between its trading operations and trading department Alameda Research.

It is important to clarify that large cryptocurrency exchanges often integrate a range of financial services that would be impossible to exist simultaneously in traditional finance. But her extensive investment portfolio and the opacity surrounding who is at the helm indicate that Binance has a tightly-knit circle at its core. She downplayed concerns about conflicts of interest, stating, "Many of the projects we invest in are actually not listed. There are different leaders and different teams, and these two teams are completely independent."

Nevertheless, U.S. regulators seem determined to hold this cryptocurrency giant accountable and have declared most activities in the industry illegal. Some issues may have to be compromised. It remains unclear what specific concessions Zhao and she are willing to offer, although she acknowledges that the unrestrained era of cryptocurrencies has come to an end.

She said, "If you can't beat them, you have to surrender."