Banking & Finance

Mine, not yours

Why the management shakeup at Bitmain?


Bitmain: co-founder ousted from the business

Two years ago when Travis Kalanick was forced to step down as boss at Uber, he told people that he was simply “Steve Jobs-ing,” dropping a not-so-subtle hint that he would mount a triumphant return to the ride-hailing giant he founded. If he is to mirror Jobs, it could take him 12 years to start his second act at Uber.

Over in China, Wu Jihan, who co-founded the world’s largest integrated circuit designer for cryptomining alongside Zhan Ketuan (also known as Micree Zhan) , has been in firing mode too.

In an internal memo dated October 29, Wu announced that Zhan, his partner of six years, had been dismissed from Bitmain Technologies and that staff should ignore his commands and avoid any meetings he convened.

Wu also took over as the company’s board chairman and executive director, replacing Zhan as the Beijing-based company’s legal representative as well.

The news was a shock because two days prior to the memo’s release Zhan had hosted the Bitmain launch of the SA5 server (equipped with the latest iteration of its artificial intelligence chip BM1684).

Although both Zhan and Wu quit their positions as co-CEOs last November, Zhan had retained greater control over the company as its largest shareholder with a 36% stake, and taken up the role of executive director.

Wu was made supervisor to the board, holding a 20.25% interest. But he also seemed to be distancing himself from Bitmain when he set up a new crypto trading platform called Matrixport based in Singapore in February.

As the man that translated into Chinese Satoshi Nakamoto’s whitepaper on Bitcoin, the world’s first decentralised digital token, Wu is a bigwig in China’s crypto and blockchain community (see WiC392). Formerly a venture capital analyst, the now 32 year-old made his first fortune in 2013 by investing in Bitfountain, one of the earliest Bitcoin miners, which was capable of unlocking 40,000 Bitcoins every month at its peak. A subsequent bottleneck at Bitfountain and the untimely delivery of much-needed mining rigs from another industry player made Wu realise the importance of taking control over the supply of cryptomining machinery. So he started Bitmain, tapping Zhan, previously an IT engineer at Tsinghua University’s research institute, to shore up his limited expertise in chipmaking (Wu graduated from Beijing University with double degrees in Economics and Psychology).

The duo have clashed regularly since 2015, with Zhan wanting to steer the company towards developing AI chips, while Wu preferred to stay focused on blockchain and crypto, according to CoinDesk, a New York-based media brand that specialises in the crypto sector, citing a partial transcript of an internal meeting where Wu explained the ousting of Zhan.

The struggle between the two reached a standoff in late 2018 when Bitcoin lost 80% of its value, plunging the company into financial crisis. Between December and February Bitmain slashed two-thirds of its headcount, says Jiemian.

“The company splashed out on a lot of unnecessary and hasty research and development projects in 2018, hiring thousands of people without a second thought,” Wu lamented, describing Zhan’s determination to double down on Bitmain’s AI chip business as “crazy”.

Instead he thought that the AI chips should be treated as a side show, receiving investment only when the company became financially sound.

Prior to the crisis the six year-old firm had risen to prominence by commanding 75% of the crypto hardware global market with its Antminer machines. Its two major mining pools – and Antpool – also contributed 37% of the total computing power for minting new Bitcoins as of August last year. (Mining pools are the networks where crypto miners gather their processing resources to solve complex math puzzles more efficiently.)

That dominance enabled Bitmain to multiply profits ninefold between 2015 and 2017 to $701 million. Before the crypto market downturn last year, it logged nearly 800% year-on-year profit growth for the first six months, before posting a loss of $500 million in the third quarter.

With its fortunes so tied to the volatile Bitcoin market – an industry viewed with suspicion by the Chinese government – Bitmain then vowed to shift focus to manufacturing AI chips in a bid to win approval for its initial public offering in Hong Kong (see WiC434).

The plan was met with scepticism and the bid for an IPO eventually lapsed as Bitmain struggled to demonstrate the sustainability of its business model to investors, reports the South China Morning Post, citing comments from Charles Li, chief executive of the Hong Kong bourse, at the World Economic Forum in Davos this year.

“I need to come back to save this ship [from sinking],” Wu told his staff as he returned to a day-to-day role last month, noting that Bitmain’s grip of both the crypto gear and mining pool markets had waned under Zhan.

How Wu toppled Zhan is still something of a mystery, although it coincided with the company filing for another IPO in the US, reported Tencent News. That came days after Bitmain unveiled a new mining farm on a 33,000-acre site in Texas. It is the company’s third cryptocurrency mine in the US and it has the potential to scale up to around 300 megawatts for mining (from 25MW initially), making it the largest Bitcoin mining facility in the world.

Bitmain’s application to IPO – which was made a week before Zhan’s ousting – means that it is going up against its rival Canaan Creative, which hopes to raise $400 million in a New York offering of its own. But Dovey Wan, a prominent commentator on crypto, tweeted that the fight between the two men would compromise Bitmain’s chances of debuting in the markets. “To be completely rational, even giving Wu credit for his chad gangster coup 1. normal investors will not trust that either one of them can manage the company. 2. Lawsuit will follow, US IPO plan screwed. 3. Bitmain customers will not trust them. The company is basically a banana,” she warned.

She’s been proven right on point two as Zhan reportedly launched a lawsuit on Thursday to seize back control of the company, saying he felt he had been “stabbed in the back” by his former partner Wu.

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