Zhao suit a glimpse into hot exchange

A legal dispute between Zhao Changpeng, founder of the world’s largest cryptocurrency exchange, and a unit of Sequoia Capital is offering a rare peek into one of the digital-asset industry’s fastestgrowing startups.

Sequoia sued Zhao over a funding deal gone awry, according to Hong Kong court filings on March 26 and April 24. The filings shed light on Zhao’s interactions with big-name venture capital firms and reveal details about how they’ve valued Binance, the exchange that Zhao started just nine months ago.

The trading platform’s meteoric rise has been one of the virtual currency industry’s most remarkable growth stories, landing Zhao on the cover of Forbes magazine and helping him amass a personal fortune that he claims is worth as much as $2 billion. Binance has also attracted scrutiny from regulators, who’ve been clamping down on digital-asset exchanges around the world amid concern that the venues may be flouting securities laws.

According to the Hong Kong court filings, Zhao and Sequoia began negotiating terms of an investment in Binance in August. The deal would have given Sequoia a nearly 11 percent stake and valued the exchange at about $80 million.

Talks continued over the next few months, the court documents show, a period in which cryptocurrency prices and transaction values soared to all-time highs. But in midDecember, as bitcoin traded at a record near-$20,000, the negotiations broke down.

On Dec. 14, Zhao’s team told Sequoia that Binance’s existing shareholders thought their proposed deal undervalued the exchange. Around the same time, Zhao was approached by another VC firm, IDG Capital, with an offer that would have injected two rounds of funding into Binance at vastly higher valuations: $400 million and $1 billion, respectively.

At issue is whether Zhao’s talks with IDG Capital violated his exclusivity agreements with Sequoia. While Sequoia and Zhao are planning to settle their dispute in arbitration, the disagreement became public after Sequoia turned to Hong Kong’s High Court and secured a temporary injunction barring Zhao from negotiating with other investors.

Zhao didn’t respond to requests for comment, and Sequoia declined to comment.