When Binance IPO? CZ explains how his firm's 'path' forward is different from that of rival Coinbase

Coinbase's recent steps toward an initial public offering (IPO) is seen as a major milestone for the crypto industry. Don't expect rival Binance to follow in its footsteps, though.

In late December, Binance CEO Changpeng "CZ" Zhao sat down with a handful of reporters, including me, in a "closed-door happy hour" Zoom chat. He fielded a range of questions, many dealing with Binance's future plans. 

When I asked about the exchange operator's exit plan — and specifically whether it looks to conduct an IPO like Coinbase — Zhao charted a different, much more crypto-native "path" forward. 

In December, Coinbase took the first step toward going public by confidentially submitting a draft registration document with the U.S. Securities and Exchange Commission (SEC).

Zhao didn't knock the "internet model" that Coinbase has followed and said its IPO will "validate" the crypto industry and boost valuations of many crypto businesses, probably including Binance's. 

However, he said, "in the crypto world, we have more options. You can do ICOs [initial coin offerings], you can issue your tokens, you can do many other things that are not traditionally available." 

Token economics

Indeed, a $15 million ICO in 2017 is how Binance first appeared on the scene. And while since then regulators around the world have chilled the ICO market, Binance — unlike Coinbase — has done its best to avoid those regulators. 

While Binance has a few regional platforms that comply with local regulations, its global platform, Binance.com, remains outside the scope of regulators in most of the popular places where companies go public, including the U.S., China, Hong Kong, and Japan.

Binance's general lack of accountability to regulators has come under the spotlight recently. In September, the Financial Action Task Force (FATF) appeared to single out the firm for its practice of moving its operations from jurisdiction to jurisdiction, ostensibly to avoid regulations. 

In October, Forbes published a report based on a leaked document that appeared to detail Binance's efforts to avoid the scrutiny of U.S. regulators. Binance later filed suit against the publication. 

Though the strategy likely precludes Binance from launching an IPO any time soon, it has left the exchange free to launch its own retail token, called BNB — an asset that many believe would be deemed a security by the U.S. Securities and Exchange Commission. 

Zhao maintains that BNB, which is native to Binance's own Binance Smart Chain (BSC) blockchain system, is a "utility token." He said during the chat that he's been focusing more and more on BSC, which he hopes to develop into a platform that resembles Ethereum.

The BSC ecosystem is "still young and small," he said, with fewer than 200 projects are currently building on BSC. Zhao said he'd like to increase that number by at least 100 times. "We want to have like 20,000 or more active projects, real projects on BSC. That's kind of the minimum goal that we want to achieve over the next year or two."

To that end, Binance is looking to "aggressively incentivize" and encourage projects to join the BSC community. Zhao said he spends most of his time getting more developers and more projects on to BSC. "Ethereum did that really, really well," he said. "So hopefully, we can try to copy some of those types of ecosystems." 

And since BNB is the native coin on BSC, he said, the more people use BSC, the more utility BNB will have, and hence more value. "This benefits all BNB holders, and Binance is a BNB holder as most of our revenues are in BNB already," Zhao told The Block in a follow-up statement. 

In the long-run, Zhao has his eyes on the world of decentralized finance (DeFi). "If we give it like 10, 20 years, I think DeFi is definitely the future," he said. 

Non-traditional IPO?

In the meantime, though a traditional public offering may not be in the cards, it might be possible for Binance to offer tokenized shares on its blockchain. Hong Kong-based crypto exchange FTX, for instance, recently listed "pre-IPO futures" contracts that let traders speculate on at what price Coinbase will list its IPO shares.

"We're definitely looking at it," Zhao said when I asked if Binance might offer a similar tokenized stock trading opportunity. "We do try to copy innovation when innovation is good," he said.

It wouldn't take more than two weeks to turn this feature on, Zhao said, given that Binance already has the technology and a relationship with licensing and compliance partners FTX is working with. 

But Binance won't rush into this. Since trading volumes of tokenized stocks are currently small, it is still "a bit too early" for Binance to get into that space, Zhao said. He also — perhaps surprisingly, given Binance's history — raised regulatory concerns. "This falls much closer to traditional securities," Zhao said in the follow-up statement.

"We see a number of crypto exchanges pioneering in this area already," he said. "We hope to learn from them when they work out regulatory and compliance standards."