Top cryptocurrency exchange Binance might be gearing up for a legal battle over its valuation, as an early investor recently called out its equity statement. According to a report from WuBlockchain, Weixing Chen, one of Binance’s first investors, recently claimed that the company was deliberately lowering its valuation to deny his payout.
Binance is Deliberately Shrinking Its Value
Speaking to the news source, Chen explained that he had purchased a 5 percent stake in Binance when the exchange started in 2017. He and a small group of investors had pledged $3.5 million to the exchange, with the company starting out with a $70 million valuation.
Since then, Binance has grown into the largest crypto exchange worldwide by daily trading volume. Given that valuations for company valuations usually surge with adoption, Binance has increased in value too.
When Chen wanted to cash out, he tried to arrive at a fair valuation of his stake, based on the company’s numbers. As he argued, exchanges like Coinbase with fewer daily trading volumes and customers have billion-dollar valuations. Based on Binance’s metrics, he estimated that the company should be worth at least $10 billion.
However, the exchange refused to give him a payout based on that valuation. Instead, the company had marked its value down significantly — to the tune of about $600 million. WuBlockchain explained that Binance has had several related disputes, with most of them linking back to its funding method. However, an anonymous source also explained that the company’s chief executive, Changpeng Zhao, runs his operation on the belief of no rights, equity, dividends, and transfers.
No IPO In Binance’s Future
Binance’s struggles are highlighting what appears to be a faulty fundraising process. It’s the type of problem that an initial Public Offering (IPO) can solve, and many companies in the crypto space have begun to understand the possible importance of public listings.
At the World Economic Forum back in February, Brad Garlinghouse, the CEO of Ripple Labs, said that they had seen IPO opportunities and would be exploring it soon.
“In the next 12 months, you’ll see IPOs in the crypto/blockchain space. We’re not going to be the first and we’re not going to be the last, but I expect us to be on the leading side… it’s a natural evolution for our company,” the blockchain executive said.
Ripple Labs is already worth $10 billion, making it one of the largest and most valuable crypto companies. Reuters also reported months ago that Coinbase, another top crypt exchange, was working towards a public debut that could happen this year or early 2021.
However, Zhao appears not to be interested in a public listing. While speaking at the BlockDown conference in April, Zhao slammed traditional fundraising methods. In part, he said:
“Institutional investors cash out, the CEO gets a big bonus, the retail guys get left holding the bag, and then the company [becomes] a really large public company, and the CEO takes big packages and then leaves, and then the government has to bail them out.”
He added that traditional funding methods had been played for too long. However, blockchain can provide a means for companies to raise money in a decentralized fashion and still achieve global access.