5 takeaways from the CEO of Binance

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At a Point Zero Forum held yesterday (June 22), Binance CEO Changpeng Zhao discussed the current cryptocurrency landscape and speculated on recovery from the market crash.

As it stands, sentiments around cryptocurrencies have been waning among major investors. Blue-chip coins like Bitcoin and Ethereum are down more than 70 percent from their all-time highs, and it looks like the bear market is here to stay.

This also calls into question the fate of other blockchain-related developments, such as NFTs and the metaverse. Just as traditional brands, in industries ranging from fashion to food and drink, were beginning to adapt to these trends, the market downturn has raised questions about their long-term potential.

To clear up some of the uncertainty, here are our top five takeaways from Zhao’s opening speech at the forum:

1. The worst of the market crash is behind us

Although projects are still feeling the effects of the market crash, Zhao believes the worst of the impact has already been borne. Based on how the market has progressed since the LUNA/UST crash, he reckons the ‘contagion’ will not spread any further.

Image Credit: Point Zero Forum

“At its peak, [LUNA’s market cap] it was up to US$40 billion,” says Zhao. “Other companies that are failing now are in the single-digit billions. We are seeing tertiary effects of the market crash, but each time, the waterfall is smaller”.

Zhao adds that the current bear market is not the same as those witnessed in 2018 and 2020.

“There is much more leverage in the system,” he justifies. “There are many DeFi projects that lend funds to other companies in a circular way. In this situation, when a company has a liquidity problem and goes bankrupt, the other companies slowly feel the pain. It doesn’t all happen in one day.”

The crypto market recovery is also likely to take a different form. “I hope the worst part is over, we’ve seen a pretty steep drop. However, it will take a long time for the industry to recover.”

Zhao predicts that it could be years before cryptocurrency prices recover to their previous all-time highs.

2. Regulations will help, but won’t solve all problems

The ease of access to Crypto has often proven to be a double-edged sword. During bull markets, he is praised for facilitating financial inclusion.

However, when projects fail, especially ones as big as LUNA, it is considered a glaring flaw. Regulators are in the spotlight for failing to protect retail investors from such volatile investments.

“I don’t think cryptocurrencies haven’t been regulated enough,” says Zhao. “We shouldn’t blame the regulators.”

He adds that companies and startups fail, even in regulated markets. “In a new innovative industry, there will be failures. We want to seek more regulatory clarity, but it will not solve the problem.”

Zhao shifts attention to education instead. “We need more of that. It’s probably the best way to protect users in the long run.”

After all, it could be years or decades before regulations are developed. “It is an iterative process. Most of the regulations focus on centralized exchanges, but now there are also NFTs, DeFi and the metaverse.”

What is the metaverse? We really don’t know yet. How do you expect regulators to make regulations on something that isn’t even formed? They are not going to design the ecosystem.

– Changpeng Zhao, CEO of Binance

3. Only the strong will survive the bear market

Despite all the mess it has caused, the bear market does come with a silver lining. Now that money isn’t flowing into all the hype-driven projects that are launched, only the ones with real value will remain standing.

“Before, there was a lot of noise,” says Zhao. “Anyone who could write a Solidity contract wanted to do their own project. Now, those projects have either failed or are no longer as active. The industry keeps moving forward, while the strongest players get a chance to shine.”

The crypto ecosystem is cleaning up and projects will need to be based on real business models to survive.

“If you’re just getting users because you’re using financial incentives, that’s not a real model,” says Zhao. “Eventually you will run out of money and collapse.”

The launch of a crypto currency, by itself, does not constitute a business model. “You really need use cases where people spend that currency, whether it’s for network transaction fees, paying for services, or buying NFTs, for example.”

“It all comes down to very fundamental business models and creating products that people want to use.”

4. High yields are not sustainable

If it sounds too good to be true, it probably is. DeFi projects are known to offer absurd interest rates through liquidity pools and yield farms. These rates don’t last forever, and investors need to be well versed when trying to capitalize on them.

“High APYs, high yields — I don’t think they’re sustainable in the long run,” says Zhao. “New projects can give these incentives to attract users, but only for a short time.”

Speaking about a project listed on Binance that offers a 36 percent annual return, Zhao says: “Binance manages risk very carefully. would assume [this return] it is very short-term and with a limited scope. It wouldn’t work if all 20 million of our users [decided to invest].”

This is not to say that crypto returns are completely illegitimate. “In the longer term, DeFi projects can offer eight to 10 percent. They have a real business model, where they make money from the trading fees that people pay.”

5. Cryptocurrencies are here to stay and governments should accept them

The industry is not going away. The technology is not going to go away,” says Zhao. He believes there are more use cases now than ever before, and the space is growing despite what the business charts say.

I think NFTs have a lot of potential. DeFi is going strong, fundraising through ICOs is going strong. These use cases do not exist in traditional finance.

– Changpeng Zhao, CEO of Binance

For governments around the world, adopting crypto has many benefits. “This new technology will give you better ways to raise money, invest and transact. It will introduce new business models and micropayments, and make it easier to do business across borders.

“When these tools are available to your entrepreneurs and established businesses, your economy will be stronger. Governments are not strengthened by exercising control, they are strengthened by having a strong economy”.

Zhao speaks of a counterintuitive stance: how most countries in the world want foreign direct investment (FDI), but not all encourage initial coin offerings (ICOs).

“When you have entrepreneurs raising money from people all over the world, that’s FDI. Once regulators understand that, many will want it.”

Aside from the government, Zhao believes that banks and other traditional financial institutions should also get their foot in the door. If not, he compares his fate to the bankruptcy of Kodak because he refused to switch from film cameras to digital ones.

“If you don’t come here early, the crypto world will just [keep developing]. And in 10 or 20 years, there will be a huge disruption.”

Featured Image Credit: Zero Point Forum

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