ChainDD Interview with Binance and CMC: Megamerger is A Wiser Choice

Abstract : There is no need for CMC to exist if measures such as restrictions on traffic and delisting are taken against the competition.

ChainDD
ChainDD

Apr 21

“Binance invests 25% of its profits in expansion and acquisition each year”, said CZ, Founder of Binance, in a tone that makes him kind of king of the crypto space. Previously, Binance announced the acquisition of CoinMarketCap (hereinafter “CMC”).

The big “whale swallowing elephant” deal between Binance, the world’s largest cryptocurrency exchange and CMC, the world’s most cited cryptocurrency market information service provider, has since become a hot topic among the people in the crypto space.

According to TheBlock, the deal will be completed mainly in the form of stock and BNB and priced between USD300 million to 400 million, compared to a total profit of USD578 million of Binance in 2019. It is fair to say that Binance offers an extremely generous price for the acquisition of CMC.

However, while being amazed at how aggressive Binance is in the deal, people are divided in the discussions over the acquisition case with some raising questions like: 1) will the data of CMC continue to be neutral and objective? Will Binance become an oligarchy? With Brandon Chez, Founder of CMC, announcing resignation as the CMC CEO and transition to the advisory role, Binance found itself in a sudden crisis of trust (former CMC Chief Strategic Officer Carylyne Chan took over the management).

In an interview with ChainDD, a CMC insider said, “7 years after founding CoinMarketCap, Brandon hopes to return to family life and he will be the only CoinMarketCap team member that will no longer participate in day-to-day operation. Other team members are excited that they will remain at CoinMarketCap and will continue to contribute to the development of CoinMarketCap”.

The official response from CMC directly squashed the rumour in the market over instability of the CMC team. And, Binance has also made it clear that CMC will remain 100% independent after being acquired by Binance.

A responsible person of Binance told ChainDD that “Binance and CMC are two companies strictly independent of each other, that is to say, Binance will not interfere with CMC ranking and CMC will not affect existing businesses of Binance in whatever way. With professional support, resources and business scale of Binance, CoinMarketCap is able to continue to provide the most accurate and timely high-quality cryptocurrency market information in the industry”.

According to CZ, CMC will expand its offerings to include futures trading, derivatives,otions, lending products, Dapp as well as all products related to data and development updates. Moreover, CMC will continue to improve the mobile client products it has launched recently. In the interview with ChainDD, CMC revealed the further product improvement roadmap and expansion of service offerings:

Improving the ranking algorithm. CMC recently launched the new liquidity indicators and added derivative market data, new rating indicators as well as analysis from trustworthy third parties. Following CMC’s shift from ranking by trading volume to a comprehensive assessment of data from multiple different dimensions, websites such as CoinGecko have begun to adopt similar comprehensive ranking algorithm, as a result of which pure increase in trading volume will not improve the ranking of the exchanges. This, to a certain extent, solved the problem of false data without human judgment of the data, therefore ensuring the neutrality.

Expand the scope of its information services to include futures, options, lending products and more value-added data analysis and tools. This is in line with the current development trend of the cryptocurrency market as more and more financial products and derivative instruments emerge in the crypto industry and the users need a reliable data source in these areas.

2019 was a year that Binance embarked on all-round expansion. In accordance with the guiding principle of “either beat it or buy it” proposed by He Yi, Co-Founder of Binance, Binance completed no less than nine 100% acquisitions in 2019 and most of the target companies were leaders in respective niche markets.

In none of the past acquisition deals, including the options platform Jex, decentralized platform DappReview or Indian cryptocurrency exchange WazirX did Binance appoint any staff to directly take over the acquired companies, allowing the acquired  companies to continue to operate independently. 

 “To a certain extent, all exchanges are competitions of Binance. If such measures as restrictions on traffic and delisting are taken against the competitions, there is no need for CMC to exist and the users will in the end abandon CMC”. In the face of extensive questions over the acquisition, Binance seems not worried at all.

CMC will keep pace with the changes in the market 

Since CMC was founded in 2013 seven years ago, it has become the world’s leading cryptocurrency market information website with the largest user traffic. According to information obtained by ChainDD from the website of CMC, as of April 15th, CMC has offered information on 5343 cryptocurrencies and 21292 cryptocurrency exchanges. Also, CMC provides free open interface services.

Based on data from SimilarWeb, CMC recorded 0.2072 billion visits during the past 6 months, making itself the real hub of traffic in the crypto space. However, in the eyes of many, CMC is not as aggressive as people would imagine.

During the past 7 years, CMC has been deriving revenues mainly from advertisements and API (Application Programming Interface) products by providing spot trading data on Bitcoin, Ethereum. Since its founding until today, CMC has been financially independent without receiving funding from any external investor.

Over the years, CMC has been regarded as a neutral party among the cryptocurrency exchanges, project parties and third parties that compete against each another. CMC has become a benchmark of “independent operation” in the industry. However, from an alternative perspective, CMC seems to have stayed outside the rapid development of the cryptocurrency market.

The period of time from 2012 until 2016 saw the formation of the Bitcoin “trading market”. Driven by Bitcoin miners, effects of Bitcoin halving as well as arbitrage in the secondary market, Bitcoin has begun to evolve from a supply & demand market known to only a few players into a trading market that covers a wide range of products. The existence and development of CMC paralleled the high volatility in the Bitcoin trading market 

On December 1st, 2017, the US CFTC officially approved the futures listing requests of CME, CBOE and Cantor. The mainstream institutions and the companies in the crypto industry began to compete for the trading market.

Since 2017, crypto trading has moved into a new stage of development as derivative trading markets surrounding the main cryptocurrencies such as Bitcoin rose to prominence gradually. Since 2017 until today, the markets of Bitcoin derivatives such as futures, options trading and decentralized lending have been booming with options/futures trading platform represented by Skew and decentralized landing data platform represented by DeFi Pluse rising rapidly. However, the CMC data remains focused mostly on spot trading.

Obviously, in an era when data is widely seen as an element of production, CMC needs to take proactive actions to serve more diversified needs of the users so as to improve the richness of the information on the platform. 

Binance told ChainDD that it will partner with CMC to ensure the information integrity as far as possible by means of ensuring data accuracy, improving the ranking methods, adding more information on products traded and providing value-added data analysis and tools. CMC will take advantage of the abundant resources of its parent company(Binance) to acquire more in-depth data and reduce information assymetricity in the crypto space while bringing more high-quality data to hundreds of millions of users. 

 “We were not actively looking for buyers. But, when this opportunity came, we feel it will help CoinMarketCap grow into a better platform. The biggest advantage that CoinMarketCap can acquire is access to Binance’s best practices. As a relatively young team, we have fewer staff, but we believe that Binance will share with us its best practices in human resources, security and finance so as to help improve our business processes”, a CMC insider told ChainDD when asked the same question. 

Presently, CMC has a total of 30 team members around the world, including the American cities like Los Angeles New York and Las Vegas, Singapore, China and Taiwan(China) in Asia as well as Europe and has no permanent offices. “Our decentralized teams are competent, and strongly motivated by the vision to revolutionize the crypto industry”.

 When speaking at the “Capital Forum” last year, we divided the Company’s development roadmap into 3 aspects: better data, more contents and more in-depth industry partnership”, the above CMC insider told ChainDD.

Today, with the support of Binance, CMC is now able to put the 3 aspects of the development roadmap into the agenda, which will be realized for the users in the foreseeable future.

Changpeng Zhao (CZ), Founder &CEO of Binance

What Binance is doing is changing the market

“Infrastructure building” is the foundation for startup of any industry, which is especially true with the crypto industry. Whether in the bull market in 2017 or the high volatility market in early 2020, the crypto industry showed more resilience instead of disappearing. 

From the iteration of the wallet tools to continuous improvement of the risk control system of the exchanges, and from the complete spot trading data on the cryptocurrencies provided by CMC to the mushrooming derivative service markets, the infrastructure construction project of the industry is well underway. 

As the world’s largest cryptocurrency exchange, Binance boasts tens of millions of users from 180+ countries and regions around the world. In 2019, Binance launched the public chain, futures and C2C businesses internally and acquired more than 9 top platforms in the industry including the spot and derivative trading service platform JEX, Indian cryptocurrency exchange WazirX, decentralized App (DApp) and analysis & service platform DappReview externally, further enhancing the infrastructure construction fundamentals of the Binance ecosystem.

A review of the development of Alibaba over the last 2 decades reveals that in addition to growing its own retail e-commerce platform Taobao, national payment product Alipay and the infrastructure of the digital economy Ali Cloud, that is a clearly a main line that connects the external investments of Alibaba, including lead investment in Meituan, Koubei and Amap to foray into the life service scenarios; acquisition of Youku and Tudou to tap into the cultural & entertainment markets; and investment in Shangtang Technology, Hanwuji and Zhongtianwei as well as other AI “unicorn” enterprises to establish a strong presence in the AI field; and obtaining controlling interests in Tianhong fund with RMB1.18 billion, which is bound to Alipay’s wealth management business.

It can be learned that the No.1 appeal behind Alibaba’s external investment is strategy, that is, to supplement or reinforce the businesses of the parent company rather than play the role of financial investor only. In the words of Joseph Tsai, Vice President of Board of Directors of Alibaba and Head of the Strategic Investment Department, Alibaba’s investment in M&A is kind of playing the go game, namely, put the right assets in the right place. Strategic investment and M&A are part of the efforts to win the go game, bringing long-term strategic value to Alibaba”. 

This is also true with Binance. “This is a long-term investment from which we want to derive more values. Both Binance and CMC are very useful products and are continuing to optimize themselves. Hopefully, CoinMarketCap can remain to be the most authoritative source of information and data in the industry”, said the responsible person of Binance when explaining the reasons behind Binance’s acquisition of CMC to ChainDD.

The first reason is to meet the development needs of Binance itself and expand the product line and scope of services. If there are already good products, mature teams and large user base out there, we prefer to acquire them and recruit outstanding teams to join Binance. Here, there is also the consideration for investment to output ratio. Blockchain is a fast-growing industry. If we hire people to explore new businesses, the growth of the company will be very slow and we may not necessarily find the right persons.

The second reason is that the teams we acquire are mostly doing better than us (better than Binance to carry out the business itself) and megamerger is a more wiser choice to make.

The third reason is the expectation for the development of the entire industry. As a top exchange in the early stage of development of the industry,Binance is good at making money and able to support its development. If the project of a developer is good, we will firstly give the developer some financial support to ensure successful development of the product.

In many ways, Binance and CoinMarketCap have a common vision, that is, to promote mass adoption of cryptocurrency and make it more relevant to more people around the world systematically. Through the acquisition, the integration of the advantages and resources of the two most prominent companies in the crypto space will make it possible to achieve this vision in a faster and better manner.

 “I always insist that we should focus less on competition and more on user needs, which is more important than competition. If you focus on competition only, it is something like driving while looking at the rear mirror and you will gain less and lose more. I believe that as two customer-driven companies, we will work together to do the right things. Anyway, we will be responsible to the users in the end”, explained the above CMC insider to ChainDD at the end of the interview. (The article was first published on ChainDD App; author: Qiu Yangtao).

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