Brian Brooks is the CEO of Binance.US, U.S. franchise of the world’s largest cryptocurrency exchange Binance.com. Before joining Binance.US, Brooks served as Acting Comptroller of the Currency at the U.S. Office of the Comptroller of the Currency (OCC) from May 29, 2020 to January 14, 2021 under former U.S. President Donald Trump. During his tenure he gave the first national bank charter to a crypto company, Forbes Fintech 50 member Anchorage Digital, and provided numerous pieces of guidance and interpretive letters clarifying that traditional banks could hold digital assets on behalf of customers and participate in blockchain-based settlement activities. Prior to joining the OCC, Brooks was the Chief Legal Officer at Coinbase, where he headed the legal, compliance, audit, investigations, and government relations functions for the company, which served 20 million customers. Mr. Brooks holds a bachelor’s degree from Harvard University in government and a law degree from the University of Chicago.
In this interview, we discuss Binance.US’s competitive positioning vis-a-vis Coinbase and other brokerages in the country and around the world. We also evaluate the impact that Binance.com’s recent regulatory issues are having on Binance.US, how he plans to grow the exchange, and interesting market and trading developments that he has seen since he assumed the position of CEO on May 9.
This story first appeared in Forbes CryptoAsset and Blockchain Advisor.
Forbes: Can you please describe how you got interested in crypto.
Brian Brooks: For me crypto was an extension of fintech, which I figured out first having spent my career in banking and banking law. The journey for me was that banks, mortgage companies and the like are incredibly antiquated in their technology platforms. The promise of FinTech was to significantly improve those platforms through use of APIs, automated processing, straight through processing and things like that. I was seeing fintechs that could improve the functioning of banks by 20%, 30% and 40%, which seemed amazing to me.Then, when a friend of mine became CFO of Coinbase, I really started deeply looking at crypto. I read books and realized that the challenge was not to make the system incrementally better, but that it was fundamentally broken. The promise of crypto is to change the system. The whole idea is to replace centralized architectures that are brittle and closed with decentralized architectures that are flexible and resilient.
Forbes: Before you joined the OCC as acting comptroller, you were the chief legal officer of Coinbase. What did you learn during your time there and why did you decide to leave?
Brooks: I probably learned more at Coinbase than any other single place I’ve ever worked, starting with the way that tech startups operate and how they are different from legacy institutions. By this I mean the need to make quick decisions with imperfect information, the need to ship products even in a world where the product might not be ready, and the lesson that a good idea at the wrong time is a bad idea. I also learned about the importance of culture and unit cohesion. One thing that Brian Armstrong (Coinbase CEO) is very good at is creating a culture inside of a leadership team. Coming from the East Coast, I thought a lot of that stuff was touchy-feeling nonsense. But I don’t think that anymore, and I hope to replicate a lot of that at Binance.US.
Why did I leave? It was a hard decision, but I was raised from early adulthood to believe that when the President calls you have to answer. I had been recruited for a whole bunch of different roles in the Trump administration, and my close personal friend (Steve Mnuchin) was the Secretary of the Treasury. And in that moment, he needed to fill that role with somebody he knew and trusted. It was a hard decision; I walked away from a lot of money to go do that job. But to me, it was a really important public service at a critical moment in time.
Forbes: Two quick follow ups regarding your time at Coinbase. Can you share an example of when you encountered the right product at the wrong time paradigm? Also, the culture question is interesting, because last summer when you were at the OCC there were some questions about overall culture at Coinbase and a memo that Armstrong issued about being “a mission-focused company.” What are your thoughts on that issue?
Brooks: In terms of examples of good ideas, wrong timing, look at what Coinbase did to launch the USDC stablecoin with Circle. It was right after our board meeting in October 2018, and I had a red eye flight to the East Coast that night. A few of us got in the room and we ideated USDC right then and there. And then I ran to the airport. That was an example where I think the world wasn’t ready for stablecoins. Nobody really knew what they were about—were they crypto native or not? And so we launched a lightweight version of that in this partnership and it kind of didn’t go anywhere for a while, it just sort of sat there. But then about two years later it took off like a rocketship because then the market realized that if you want to have a crypto economy, it can’t only be based on highly volatile assets. If crypto is going to be anything more than speculation, stablecoins are the missing piece of the puzzle. I think that’s why USDC went from about $1 billion to $25 billion in market cap in a really short amount of time. That’s also why the Binance USD token went from $1 billion to $11 billion in six months. But for the first 18 months it was an idea without a home. It is the same with the idea of smart contracts, built on Ethereum or Binance Smart Chain. I don’t think that people understood their power for some time, but they suddenly figured it out and DeFi app development has gone through the roof as a result.
Regarding the culture question, different leaders have different styles of making points. I might not have said the words that Armstrong said, but what I do think is that we live in a world where half the country thinks the other half of the country is not only wrong, but crazy and possibly evil at some level. And it’s not a fringe. It’s not like 90% of the people think the fringe 10% is crazy. And so if you’re leading a workforce, you have to understand that no matter what you say, half of the people you’re saying it to probably disagree with you. So I think the underlying point that Armstrong was making is, “hey, we have a lot of things that are different about us.” Some people are pro immigration and others are anti-immigration; some people are pro choice, some people are pro life—they’re not bad people. They’re just people who grew up in this country like you did, and they have these views. What we have in common in the workplace is the mission of the company. So it’s important that we build on what we have in common, because that’s the value worker, that’s why we’re here, right? There are other places to go to have political debates. In my experience, the best way to manage those differences and not to try and suppress them, is to try to make people understand that their views are totally fine. And I respect them. I don’t share them but I do respect that you have them and you’re a smart person who I can learn from, just like you might have things to learn from me. And I think engaging in those conversations and making people feel like it’s not unsafe to have those views, whether liberal or conservative, whichever one that’d be more my style. But I think Armstrong’s core point is that we’re here because we’re building something we all agree with; let’s spend most of our time building and less of our time fighting with each other.
Forbes: We alluded to it earlier, but obviously your ten months at the OCC were very productive. What are you most proud of during your tenure there?
Brooks: I think what I’m most proud of is that we started in one place and completed a mission by the end. What I mean is we began with a thesis that decentralization is one of the two most important trends affecting the financial system. The other being unbundling, which has led to the rise of fintech and decentralization, which is what crypto is all about. We started by saying if financial services are going to be delivered in the future on chain as opposed to traditional verticals like banks, then we need to start advising banks about which activities in crypto are permissible for them. We wound up granting the first bank charter to Anchorage. The way I tell the story is we started by noting that banks can interact with crypto, and we wound up saying that crypto really is banking. The act of transmitting value on a blockchain is banking. Chartering an actual bank took real heroic work by a lot of people at the OCC and I think that will go down in history as transformational. Of all the things I did, some of which will survive, and some of which won’t, the bank charter will never be forgotten.
Forbes: Your tenure ended around the time of the new administration. What are your thoughts on how the administration’s new Congress has been approaching crypto? What do you think they’ll get right or get wrong? And if you had one or two things on your wishlist, what would they be?
Brooks: I wrote an op ed on five things that I thought the new administration should think about. The first thing is that tech shouldn’t be political. There were some things I did that were political in the sense that Republicans believe in those things and Democrats don’t, which is fine. That’s why we have elections in this country. My personal belief is that growth is a better path for wealth building and equality than redistribution. That’s a political ideology that Republicans generally share, and Democrats don’t. Some of those things I did based on that worldview will probably be undone by the Democrats, and that’s okay. Again, that’s why we have elections. What I don’t understand, however, is why stablecoins are political or why a crypto bank charter is political. What I worry about is when I see that there’s a giant ideological debate over central bank digital currencies versus stablecoins—we’ve seen that play out recently. Or the idea, for example, that these bank charters ought to be looked at, again. If you believe that supervision makes things safer, then you’d want crypto activities to happen inside of a framework where they can be supervised to make sure that there’s no fraud going on and that IT security is being observed and everything else. Why would we want to kick that out of the banking system? I truly don’t understand that. What I worry about is that we’ve gotten to a place in this country where anything the last administration did has to be undone just because it was done by the last administration. That’s a really dangerous dynamic, because there will be a Republican administration in the future. And imagine what would happen if they tried to undo everything this one does. We need to be able to identify what things are happening, which are political and which aren’t. I don’t think crypto should be, but it clearly has become that and that is concerning to me.
Forbes: You’ve been at Binance now for about two and a half months. Why was that the right place for the next step in your career?
Brooks: I think Binance.US is the right place for a couple of reasons. First, it’s the highest potential crypto exchange that still has all its growth in front of it. I had a lot of really interesting other opportunities at companies that would have been amazing to work at, but those were companies that were far more mature in terms of headcount, strategy, longevity, etc. Those are the places I could have helped lead and manage, but I couldn’t have built because they were already built. When I joined Binance.US, we had about 120 employees and $600 million a year of revenue run rate, so it was a gigantic opportunity waiting to be shaped. I have a vision for how this company can be different from other exchanges, but I couldn’t implement that vision at a mature exchange. Here’s a chance for me to come and say we’re going to build some product that is different from any other company; we’re not just going to compete with the Coinbases and Krakens of the world. We’re going to build a product that’s really different from what they do. And we’ll move to the white space, doing things like exploring Binance Smart Chain as the platform that is the App Store of crypto; there’s no other exchange that has such a thing and we should be leveraging that as such. Looking at BUSD and thinking about ways we can build payment applications on top of that token. Others are mostly not doing that with their stablecoins, but we have the third largest dollar-backed stablecoin, and we should be doing that.
Forbes: Some readers who are new to the space are trying to understand the differences between buying crypto on a platform like RobinHood or Revolut or PayPal and going to an exchange like Coinbase, Kraken, Binance US, Gemini, etc. What are the big differences between a dedicated exchange versus one of these more retail focused brokerages?
Brooks: I guess it’s a little bit like back in the day, did you feel more comfortable taking your car to Sears for its oil change or did you like having a relationship with a person who was an automotive mechanics expert? For me, I would want to be at a place that specializes in what I’m doing there, and I think that most consumers feel that way. My evidence for this belief is the decline of the department store. Nobody wants to buy their computer at Macy’s; they want to buy it at the Apple Store. And generally speaking, you don’t even buy your clothes at Macy’s anymore, you go to your specific jean outlet that has the brand that you want, because they’re a specialist in what you care about. I think that’s going to be the trend in crypto as well. I think some of these other sorts of financial supermarkets are trying to reassemble an online version of a big bank. It’s sort of like if you’re Robinhood, for example, we initially offered stock trading, then we offered margin and options, now we’re going to offer deposit products, which they tried to do, and now we’ll offer crypto. We’ll kind of do everything. I think that’s contrary to the other big financial services trend, which is unbundling. I think in the end they’re going to get crypto at a company that specializes in crypto, and that’s going to be more and more true over time as the exchange business goes away.
So this is my headliner for you, which is that the exchange business is not a profitable, long run business. Because the privilege of buying and selling an asset that you own is not something over time that you’re going to pay a premium for. That’s what you saw when Robinhood basically took down Charles Schwab’s trading fees. RobinHood knows this better than anybody. Look at our environment in crypto: Coinbase’s biggest risk is that it charges a 2% trading fee and Binance.US charges a 10 basis point trading fee. They have an amazing app, it’s really beautiful. But why would anyone pay 2% for the privilege of buying and selling their own assets, their own money, when they could come to my exchange and do the exact same thing. But my point is that Robinhood, PayPal and the like, ultimately are not going to make money buying and selling crypto because the fees will eventually go to zero. It’ll take a little while because people are new to the asset class. But in five years, those trading fees will all go to zero.
So why are they doing it? Because their customers want crypto in addition to stocks and bonds. And so what they’re thinking is we need people to stay on our platform so we have to offer whatever assets are out there. But they’re relatively late to the party, and they can’t be cheaper than I am because I’m basically giving it away for free. That’s why I think the future of crypto isn’t more people offering trading services like Robinhood and PayPal. The future of crypto is building decentralized applications that add value to people’s lives. That’s how Google was different from AOL. If you think about it, Google and Yahoo realized that the internet is not about search—it is about unlocking value across all manner of human activity where networks function better than brick and mortar. We have to do the same thing for financial services that Google did for the original internet. That’s not going to be done by Robinhood. Because Robinhood is not in the business of decentralization, it is in the business of buying and selling assets and that’s a much narrower business.
Forbes: How do you see Binance.US evolving during your tenure?
Brooks: Because Binance.US is cheaper we will eventually compete among the top one or two exchanges in the United States. That’s inevitable; our exchange business will scale to a point where very likely, the two exchanges in the U.S. will be Coinbase and Binance.US. What we will do differently, though, is that we will build products around three pillars that nobody else has. One of them is the Binance Smart Chain, which is an app developer’s dream. It’s faster and cheaper than Ethereum, but otherwise the same as Etheruem. And since that’s a chain we invented—not that we control it, we forked over the code and innovated it—it’s likely over time that we will have earlier access to new cool projects in crypto than other people. And so we will build products around the platform the same way that Apple built products around the App Store.
Second, we have learned a lot from the BNB coin (the Binance token) about the power of coupling incentives inside of a smart contract with fungibility. Think about what the Binance token is—it represents the right to receive discounts on our trading fees, which people use it for, a lot. But increasingly, people are choosing to hold the token, rather than spend it for the discount because they found that the increased value of the token as the company grows, exceeds the financial value of the discounts. And so it gets our customers to act a little bit more like owners—people who want the company to succeed; their interests are aligned with that of the company. That’s an amazing thing we’ve learned from the Binance token. We now have other people, other companies, coming to us and saying, “that combination of incentives and fungibility worked really well for Binance, could it work for us?” Could we tokenize an airline’s frequent-flyer program by making its frequent flyer miles fungible on an exchange so you don’t have to use it to get a seat, you can use it to trade because it’s appreciated as an asset? If you’re a retailer, can you take your loyalty program and migrate it into a token environment where again, like Binance Coin, it can be bought and sold? You don’t just get points by spending money on the platform, you can just buy tokens on the open market, and suddenly your customers become very sticky for the same reason. So building a product based on the Binance coin example is a super powerful thing to do that we’re really working hard with a number of customers on.
Lastly, the idea of crypto as a payment mechanism has barely been touched. And yet, we’ve got this giant stablecoin project, which has 11 billion or 12 billion units of circulating supply on a given day, up 1,100% from the beginning of the year. We should be embedding this so that you don’t need Uber cash anymore, there should be Ubercoin. It should be based on our stablecoin. Stablecoins are totally the future, they don’t require an underlying bank to process transactions and they settle immediately. So again, building a payments business around that, ultimately, I think has a ton of potential. That’s why I say in the future this company will be a product company. The exchange will be our distribution, but it won’t be our revenue generator five years from now.
Forbes: How would you say that Binance.US’ offerings are different from Binance proper’s?
Brooks: They’re different because we operate in a U.S. regulatory environment. Binance.com offers something like 900 assets, while we offer more like 55. The reason for that is because here, we have to do a U.S. securities law analysis for every token that we list, and there are a lot of tokens that we can’t list. Binance is not constrained by that. Same thing with derivatives. Binance.com is not only the largest spot exchange in the world, but it is also the largest derivative exchange in the world. In the U.S., the crypto derivatives space is very small, largely because the Commodity Futures Trading Commission has not yet allowed anybody to offer leverage. Now, I think that’s going to come fairly shortly, because there are some applications pending. But at the moment, there’s a very small derivatives market here. And while we don’t have a product there, we’re looking very closely at derivatives, by the way, but we don’t offer it yet. So that’s pretty different. I would say that virtually all the differences are based on the different regulatory climate where this company was founded. We’re going to have a big monster business, but it’s never going to be as broad as a business that can operate in places that have less regulation.
Forbes: What is the relationship right now between Binance and Binance.US?
Brooks: We have a series of licensing agreements that allow us to license the name so you might think of us as the U.S. franchise for Binance. But the amount is getting smaller. We’re in the process of migrating the tech stack over to entirely U.S. servers. We already store all U.S. customer information in the U.S. But things like the matching engine and product functions, among others, we’ll move onshore over the next four or five months; we’re already in the middle of that migration process. So, that relationship will go away relatively shortly. And then of course, we share a common founder. We have a board member who is the founder of Binance.com. We also have a board member who is not me. As we work through our first venture financing round we will have additional U.S. board members that will not have connections to Binance.com. The point is you might think of us as a franchise; we have licenses to use the mark, we licensed certain technology, we also innovate some technology that’s all our own. And that’s the connection.
Forbes: Can you share any more details about the amount you’re looking to raise or timing for this round?
Brooks: I really can’t talk about numbers other than to say I think it’s going to be a really impressive round with an impressive group of investors in it, but I can’t talk about it until it’s done. But we’re mid-diligence right now; term sheets are signed, and we expect to have something announced relatively shortly.
Forbes: Binance.com has been in the news a lot recently with some regulatory questions (see page tk for details). What are your thoughts on what’s been happening and what, if any, implications may it have for Binance.US?
Brooks: I’m not working on any of the issues that relate to Binance.com, so I don’t have any personal knowledge of that. What I can say, though, is the very fact that Binance.US exists shows that there was a time two or three years ago, where the leadership of Binance.com realized the environment in which they launched their company is changing. When the idea of Binance.com was first coming around, most of the world didn’t really regulate crypto. So they built a company with that in mind. And then the G20 countries started developing regulations and so they set up companies like Binance.US thinking it will operate differently in the regulated world than in the unregulated. And I think what you’re seeing is more and more countries are adopting regulations, and Binance is saying we now have a licensing framework and if you don’t have a license, you can’t compete here. My expectation is that they will work to obtain licenses in countries that require them and not in countries that don’t. But again, my focus is on operating this business in regulated jurisdictions, and building a company that knows how to operate under supervision. That’s the way we were from day one, whereas on day one, they (Binance.com) was built with a different focus.
Forbes: Has there ever been thought given to changing your name once some of these license agreements run out to make the distinction between the two companies more clear?
Brooks: Yes, of course, it’s an obvious thing to think about. But it’s a bit of a hard call, because on the one hand the Binance name signifies certain things to regulators that maybe has some controversy around it, based on the recent news cycle. But on the other hand, it’s a super powerful brand among crypto customers. It is the fastest trading, best matching engine in the world by a lot. So you have to weigh the pros and cons of changing the name. It’s got universal brand recognition and among customers, it’s a very positive brand, but among regulators, it can be controversial. And of course, the confusion factor is a real consideration. So we’ll look at that and think it through, but I don’t think we have a judgement on it at the moment.
Forbes: I’d like to talk a little bit about what’s happening in the marketplace. Since the last time we spoke, there’s been a pretty big dip. How do you see the current trading landscape and have you seen any interesting patterns or activities on Binance.US regarding how institutions or retail investors are trying to manage this current climate?
Brooks: I have a couple of thoughts. One is when you say it’s a pretty big dip. Obviously, it’s way off the all-time high but on the other hand, if you just plotted a line historically and where we are today it shows something different. I always tell the story of when I was a lawyer and I represented Fidelity, I went into the trading room one time and they had a chart on the wall of U.S. equities prices, basically like a synthetic S&P 500, from 1789 to the present and if you sit across the room, it was a straight line up from the bottom left to the top right. But if you went really close up and looked at the line, you saw things like the crisis of 1907, and the Great Depression and other things.
I think the same thing goes on in crypto, where if you zoom out, you think a year ago bitcoin was at $8,000, now it’s at $35,000. That’s an amazing line up. Or if you look very close up, you see it was at $62,000 and now it is $35,000. So it all depends on your perspective. You should not be in the investing business for the short haul. That’s where I start.
In terms of what’s going on now, what I think is interesting is that crypto has actually started to enter the phase we’ve all always talked about, which is the utility phase—the idea that we’re really building internet apps here, we’re not building magic money. I say that because bitcoin dominance is so much lower today than it was three or four years ago. When I checked last night bitcoin dominance on Coinmarketcap.com was like 49%. But it used to be more like 60%. The reason that matters is because the tokens that are basically app development tools, like ether, have pumped relative to bitcoin over time, which means that people are starting to see this as a development platform, not a magical form of libertarian money.
Forbes: You’re currently in a fundraising round so I’m assuming you can’t comment on whether you have plans to go public. So instead I’ll ask why you think it’s better to go the private route than the public route at this juncture?
Brooks: Binance.US is not remotely ready to go public, but we definitely will go public at some point. To be clear, that is the plan. This is a company that has enormous earning potential. And as we build products and as we gain maturity and stability, we should go public. But if there’s one thing I’ve learned—I’ve worked in at least two fast-growing private companies, one was a bank, one was, Coinbase—you don’t go public until certain things have happened. First you need to have a management culture that has gelled and is stable over time. And we’re in a fast growth mode right now. We’re hiring a lot of people, including some people at the very top levels of the company. And so the culture is not gelled yet. We need stability in terms of how we are operating, how we relate to each other and how we grow the business. Second, you have to have your core products in place. Right now we’re an exchange but as I mentioned earlier we will evolve beyond being an exchange and you don’t want to do that evolution in the public markets. You want to do the evolution and then say, look at what we are, this is the public value proposition.
We are doing the venture raise for a bunch of reasons. One reason is that we need to create a valuation so that our employees can see what the value of the stock is, and then be incentivized by the prospect of growth beyond that. So it’s important to establish the valuation. Another reason is that the money will help us do certain things where even though we’re profitable today, we don’t have enough cash to be competitive in the M&A world. There are going to be things out there that we’re going to have to compete with, be it Coinbase, CME, ICE or whoever. So we need a little bit of a war chest to do that, we also need some money to fund a venture arm, because one of the ways that you build a crypto platform is you get early exposure to the projects. The way you do that is by investing in the projects. So it’ll fund those kinds of things. Finally, it’ll help us get new board members who are invested in the success of the company. It’s imperative to make clear to the world that we know we really are a separate company, we have a different Board of Directors with very senior credible people who are known in the space. We have owners that are different from the Binance.com owners and you can only do that by selling shares. So all of those things mean it’s the right thing to do for the company. My guess is that we will go public in 36 to 48 months.
Forbes: Regarding the way you go public, do you see yourself eventually converting Binance.US more into a DEX (decentralized exchange) similar to what happened at ShapeShift or go public in the traditional sense of the word?
Brooks: Who can say what makes sense for which parts of the business but the thing I’m most excited about is building value-added products. So, the exchange part of the business, you could argue if you really believe in decentralization, then you should decentralize the exchange, there’s an argument you should do that. The company right now is focused, not just on the exchange, but also building products. Apple is never going to be decentralized as a company. Google is not decentralized as a company because it needs to exist as a corporate entity to build stuff. And somebody’s got to pay the engineers and the product designers and people like that. So I don’t think that Binance.US will go the route of ShapeShift as a company whether the Binance.US exchange one day did that as a spinoff or something who knows, interesting thought experiment, but my expectation is that this company will go public, probably following Coinbase’s lead. We saw how that worked; it’s a great precedent. That’d be my expectation.