5 takeaways from the CEO of Binance
5 takeaways from the CEO of Binance

5 takeaways from the CEO of Binance

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

Currently, the sentiment surrounding crypto has waned among mainstream investors. Blue-chip coins — such as Bitcoin and Ethereum — are down more than 70 percent from their all-time high, and it looks like a bear market will remain.

It also questions the fate of other blockchain-related developments such as NFT and the metaverse. Just as traditional brands — in industries ranging from fashion to F&B — are beginning to adapt to these trends, the market crash has sparked doubts about their long-term potential.

To clear up some of the uncertainty, here are our five main conclusions from Zhao’s keynote on the forums:

1. The worst market crash is behind us

Although the project is still experiencing the effects of the market crash, Zhao believes that the worst impacts have already been borne. Based on how the market has developed since the LUNA/UST crash, he assumes that the ‘contagion’ will not continue to spread.

Image Credit: Zero Point Forum

“At its peak, [LUNA’s market cap] reached US$40 billion,” Zhao said. “Other failing companies are now in the single-digit billions. We see the tertiary effect of the market crash, but each time, the cascade is smaller.”

Zhao added that the current bear market is not the same as it was witnessed in 2018 and 2020.

“There’s more leverage in the system,” he confirmed. “There are a lot of DeFi projects, lending funds to other companies on a circular basis. In this situation, when one company has liquidity problems and crashes, other companies slowly feel the pain. It doesn’t all happen in one day.”

The crypto market recovery is likely to take a different form as well. “I hope the worst is over – we’ve seen a pretty sharp drop. It will take a long time for the industry to recover. ”

Zhao estimates that it will be years before crypto prices recover to their previous highs.

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

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

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

“I don’t think that crypto isn’t regulated enough yet,” Zhao said. “We shouldn’t blame the regulators.”

He added that companies and startups fail, even in regulated markets. “In any new, innovative industry, there will be failure. We do want to seek more regulatory clarity, but that won’t solve the problem.”

Zhao turned his attention to education. “We need more than that. This is probably the best way to protect users in the long run.”

After all, it can take years or decades to make regulations. “This is an iterative process. Most of the regulations focused on centralized exchanges, but now there are also NFT, DeFi, and metaverses.”

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

– Changpeng Zhao, CEO of Binance

3. Only the strong will survive in the bear market

For all the chaos it causes, the bear market comes with a silver lining. Now money isn’t pouring into every hype-driven project that’s launched, only projects that have real value that will stay standing.

“Before, there was so much noise,” Zhao said. “Anyone who can write a Solidity contract wants to create their own project. Now, those projects have failed or are no longer active. The industry is still moving forward, while the stronger players are getting a chance to shine.”

The crypto ecosystem is being cleaned up, and projects must rely on actual business models to survive.

“If you’re only getting users because you’re using financial incentives, that’s not the real model,” Zhao said. “Eventually you will run out of money, and you will fall.”

Launching a crypto coin, by itself, is not a business model. “You actually need use cases where people spend those coins, whether for transaction fees on the network, paying for services, or buying NFT, for example.”

“It boils down to a very basic business model and building a product that people want to use.”

4. Unsustainable high returns

If it sounds too good to be true, it probably is. DeFi projects are known to offer unreasonable interest rates through liquidity pools and yield fields. These rates don’t last forever, and investors should be experienced when trying to take advantage of them.

“High APYs, high returns — I don’t think they are sustainable in the long term,” Zhao said. “New projects can provide this incentive to attract users, but only for a short time.”

Talking about the Binance-listed project that offers an annual return of 36 percent, Zhao said, “Binance manages risk quite carefully. I will assume [this return] very short term and with limited scope. It won’t work if all our 20 million users [decided to invest].”

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

5. Crypto will still exist, and governments should accept it

Industry will not go away. The technology will not be lost,” said Zhao. He believes there are more use cases now than ever before, and the space is growing regardless of what the trading charts say.

I think NFT has a lot of potential. DeFi is getting stronger, fundraising via ICO is getting stronger. This use case does not exist in traditional finance.

– Changpeng Zhao, CEO of Binance

For governments around the world, embracing crypto provides many benefits. “This new technology will give you a better way to raise money, invest, transact. It will introduce new business models and micropayments, and facilitate cross-border business.

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

Zhao talks about being counter-intuitive – how most countries in the world want foreign direct investment (FDI) but not all encourage initial coin offerings (ICOs).

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

Apart from the government, Zhao believes that banks and other traditional financial institutions also need to intervene. Otherwise, he likened their fate to that of Kodak going bankrupt because it refused to switch from film to digital cameras.

“If they didn’t come here earlier, the crypto world would just [keep developing]. And in 10 or 20 years, there will be a big disturbance.”

Featured Image Credits: Zero Point Forum

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