Too much success makes you not as hungry. Not as disciplined. Not as paranoid,” Olaf says, sipping tea in a Manhattan restaurant in 2019.
It’s been years since the day he first turned up for work at Coinbase with a single Uniqlo dress shirt to his name. Olaf doesn’t look boyish anymore, but his eyes still sparkle with the same intensity, and he’s as eager as ever to talk about lucid dreaming. Now in his early thirties, Olaf has the improbable task of managing money for Andreessen Horowitz and other high-wattage VC firms through his crypto fund, Polychain Capital. He still cares deeply about Coinbase—he and Brian are close friends—but frets about what his former employer has grown into.
“Coinbase got too comfortable,” he adds. “At a board meeting, it was all about, ‘How are we going to spend all this money in order to avoid a tax liability?’” In Olaf’s view, Coinbase should have been exploring the new frontiers of crypto rather than perfecting its corporate finance game.
• • •
The cash bonanza of 2017, it turned out, did create complacency. Coinbase entered the crypto winter believing it could simply wait for the next upswing while spending its time snapping up smaller companies and patching up its battered infrastructure. This was a sensible tactic but a poor strategy. As Coinbase sat back and waited for the market to turn, it failed to account for rapid changes that were happening in crypto even during the downturn—changes that threatened to make Coinbase obsolete. The company was like a driver tuning up an old Buick even as, in a garage next door, his rival was detailing a Porsche.
Brian’s new rival went by the name of CZ (the initials stand for Changpeng Zhao, but everyone uses the shorthand version). CZ wears wireless glasses and close-cropped black hair. In public, his go-to attire is a black hoodie emblazoned with the name of his company in yellow letters: BINANCE. Since he appeared on the scene in 2017, CZ has emerged as the most disruptive figure in the history of crypto after Satoshi and Vitalik.
CZ was born in the Chinese province of Jiangsu. He and his family crossed the Pacific when he was twelve years old to start a new life in Vancouver. The move was necessary after his father, a professor, run afoul of Chinese authorities for being too outspoken—a characteristic that, years later, would redound in his son’s demeanor. In Canada, a teenage CZ dunked fries at McDonald’s and worked overnight shifts at a gas station to help his family. All the while, he honed his natural aptitude for finance and computers.
CZ’s coding prowess won him a ticket to McGill University’s computer science program, and then gigs at major financial hubs around the globe. Like other prominent crypto figures, CZ embarked on a peripatetic existence—building software for the Tokyo Stock Exchange and then working for Bloomberg in New York before moving on to Beijing, where he built high-frequency trading tools.
It wasn’t until 2013 that CZ, then thirty-six, discovered bitcoin. He became fascinated. His new passion led him to London and a stint with Blockchain, the crypto wallet company founded by Ben Reeves—the would-be cofounder of Coinbase whom Brian had jilted on the eve of startup school. In a karmic payback of sorts, Reeves would help launch the crypto career of the man who would become Brian’s biggest rival.
CZ thrived at Blockchain and then at another crypto shop, OKCoin, but what he really wanted was to put his own stamp on the industry. He bided his time until, in 2017, he chose to strike. As ICO mania hit a peak, CZ launched a token offering of his own, raising $15 million to fund his new company, an exchange he called Binance.
Binance wasn’t just any cryptocurrency exchange. In an ingenious twist on the business model, CZ encouraged customers to use Binance tokens—the ones he sold in the ICO—to obtain a discount on trading commissions. This meant the fee for a trade on Binance’s exchange might cost $10 if a customer paid with bitcoin but only $5 if the fee was paid in Binance Coin. Unlike so many other new cryptocurrencies, CZ’s coin was useful.
Owning Binance Coin was a bit like holding shares in ICE, the parent company of the New York Stock Exchange. The shares were an investment that would rise and fall based on how well the exchange was doing. But in the case of Binance Coin, the shares could also be used to purchases stocks listed on the exchange.
To further juice the value of his new currency, CZ had arranged for the exchange to destroy a given supply of Binance Coin every quarter. This served to reduce the overall supply of Binance Coin and drive up their price—the equivalent of corporate share buybacks in traditional finance.
In one stroke, CZ had devised a system to keep customers loyal to his exchange—the discounts on fees offered by Binance Coin—while also creating a valuable new currency. In the months after the ICO, the coin’s market cap would cross $1 billion and, by 2019, would become the sixth-most valuable cryptocurrency. CZ himself joined Brian and the Winklevoss twins as a crypto billionaire.
A big reason for this success was another clever move by CZ: he decided Binance would eschew the business of trading conventional currency—dollars, euros, yen—for crypto and offer only crypto-to-crypto trades. This meant customers could swap bitcoin for Ethereum, or Ethereum for Litecoin, or Litecoin for dozens of other cryptocurrencies.
For CZ, the crypto-to-crypto arrangement offered an obvious advantage: it meant Binance didn’t need to touch the conventional banking system, which was a landmine of laws and regulations. CZ also employed another tactic to avoid tangling with the Treasury Department and myriad other agencies in the United States and Europe: He based Binance in small island nations whose governments, eager for business, did not bother much with US-style banking rules. “The strategy in places like the US requires lots of lawyers and lobbyists,” CZ says with a grin. “I prefer places like Malta where I can just call up the prime minister and talk to him directly.”
CZ’s shrewd strategy earned Binance buckets of money. The new exchange was a smash with customers. Those customers, however, still needed a way to convert government-issued money into cryptocurrency in the first place. Many turned to Coinbase. But the San Francisco–based company supported only four cryptocurrencies and levied higher fees than Binance, leading many traders to immediately move their new coins over to CZ’s exchange. A refrain began to echo in crypto circles: “Coinbase is just an onramp to Binance.” It meant that Coinbase—the longtime star of the crypto scene—had been reduced to the role of a doorman, collecting a cover charge as people poured into a luxury nightclub and ordered bottle service.
For ordinary investors looking to buy a little bit of bitcoin or Ethereum, Coinbase still fit the bill. But to avid traders and hard-core crypto enthusiasts, the lure of Binance Coin and dozens of exotic assets was irresistible. Binance was the future. “We were getting our asses kicked by Binance, and we didn’t have a strategy,” recalls Coinbase lawyer and political fixer Mike Lempres.
In less than a year, and while Brian and Coinbase were cleaning their shop and waiting for the market to recover, Binance eclipsed Coinbase and other established exchanges to become the most popular crypto service in the world.
• • •
Lempres pushed a plan for Coinbase to split into two legal entities—one that did business in heavily regulated places like the United States and another that offered dozens of cryptocurrencies while operating from a regulatory haven like Bermuda. The plan went nowhere, and well into 2018, Coinbase stumbled along with the same four currencies. Longtime engineer Craig Hammell recalls a plan for the company to add Dogecoin, the novelty currency based around the Shiba Inu dog meme in which an adorable pup speaks silly phrases in broken English. Dogecoin had a cult following and would have been easy enough to add in the old days. But with Coinbase’s new layers of corporate bureaucracy, it stalled. “We were going to do it,” Hammell remembers, “but then it went into all these meetings where someone said they didn’t see a return on investment. They didn’t get it. Even if it wasn’t a money maker, customers wanted more assets and Coinbase wouldn’t add them.”
The startup where employees had once run through brick walls was now acting more like a stodgy, middle-aged corporation.
Meanwhile, Binance kept cranking out innovations. It debuted a marketing service called Launchpad that invited new crypto projects to buy Binance Coin in exchange for publicity on the exchange. And in a move that underscored CZ’s sweeping ambitions, Binance laid plans to challenge Ethereum. Vitalik’s smart contract platform was still top dog when it came to hosting other cryptocurrencies—even Binance Coin relied on Ethereum—but CZ concluded it was too slow. The time had come, he decided, for Binance to build its own blockchain.
While Coinbase was dithering over Dogecoin, CZ was laying plans to remake the next era of crypto. His exploits made him a cult figure in the industry. An effusive profile in the trade publication Coindesk blared without a hint of irony: “The Unbelievable Brilliance of Binance.”
Was CZ as brilliant as all that? Possibly. But some people attribute the rapid rise of Binance at least in part to the hubris of Coinbase and its investors. According to one crypto entrepreneur who has worked in Asian markets, the reason Coinbase didn’t see Binance coming is because it’s hard to see anything with your head up your ass. “People think crypto is the next trend and therefore Silicon Valley will dominate it,” the entrepreneur says. “What’s happening here is arrogance and bias in favor of a company that came up in a Western market.”
The same clique of investors who made a killing on Facebook and Uber thought Coinbase would create a killer monopoly too. Wrong, says this entrepreneur. The winners in the crypto world will instead be companies like Binance with CEOs who have been battle-tested by Asian markets. “Asia’s not in Coinbase’s DNA,” he says. “I see a cultural gap there that’s not closable for them as a company.”
Not everyone was awed by Binance. Wences Casares, the early bitcoin visionary from Argentina and CEO of the crypto storage service Xapo, saw Binance as just another crypto cowboy that rose quickly by skirting the rules. Casares predicts CZ will face a fall like Mt. Gox or Poloniex—two other exchanges that once dominated crypto trading but were laid low by scandal and regulatory troubles.
Asiff Hirji, who was charged with battling Binance as Coinbase’s COO, also claims the rival exchange is not built to last. Much of the hype around Binance’s rise, Hirji suspects, was built on sleazy business practices such as wash trading—a common trick where companies or exchanges take both sides of a trade in order to paint a false picture of user activity. “‘Run fast and break things’ doesn’t work when you’re dealing with people’s money,” says Hirji. “You have to move quickly but you have to aim. What’s going to happen is, I think that guy is going to jail. He’s a fraud.”
People may have disagreed on whether CZ was a genius or a fraud. But in mid-2018, both sides would agree on one point: Binance was indeed kicking Coinbase’s ass. By April, Brian and the board finally decided to act. Coinbase needed someone to lead an assault on the bureaucracy enveloping the company. Someone, Brian thought, who could command like a general. What they got was more like a rogue special forces soldier.