ShapeShift Is Going Full DeFi to Lose KYC Rules

[fillippone]

As reported by Coindesk, Shapeshift is going to massively overhaul their Business model shifting from CEX (centralised Exchange) to DEX (Decentralised Exchange)

ShapeShift Is Going Full DeFi to Lose KYC Rules

ShapeShift is swapping business structures again, this time by getting rid of its entire trading desk.

The Colorado-based non-custodial exchange is now routing orders through decentralized finance (DeFi) applications in a bid to get rid of know-your-customer (KYC) regulations that gutted the cryptocurrency trading platform back in 2018.

The firm will gradually phase out its own centralized trading activity (and KYC policy) in favor of a decentralized alternative as it becomes “100% DEX-based for customers,” ShapeShift founder and CEO Erik Voorhees told CoinDesk in an email.

They go on:

“Because ShapeShift is no longer acting as any form of financial intermediary or counterparty, this new, frictionless [user experience] frees users from having to provide personal, private information,” a press release from ShapeShift states.

I don't know how this kind of decision will be accounted by regulators, but for sure this is pushing SS outside the "walled garden", deemed acceptable for regulators themselves.

Remember how privacy is an undervalued asset, with the unique feature of preciousness and scarcity: once you gave it away once, it's lost impossible to have it back

Read more here:
A Treatise on Bitcoin and Privacy

Now the regulator is on a big push to create such a Walled Garden, in order to allow US investors to safely invest in BTC: there is too much money to be made to allow unregulated subjects racking up all the profits.

In the long run, the transition to a fully anonymous, KYC free environment is inevitable. But this will take time, and steps like this one go in the right direction.


 

[1715070551]

1715070551

[avikz]

I am sure such kind of decision will not go well with the regulatory agencies in US! Because what shapshift is trying to achieve, is exactly opposite to what the regulators are expecting around the world! Regulatory agencies are actually trying to make sure they have all data of crypto users at their disposal. But a Dex model will go against that idea!

I hope Shapeshift will go out of the US soil before making any such drastic shift which may make their business unstable! Power to them!

[100bitcoin]

Primarily they need to relocate to some offshore island. Staying in US and denying KYC is utter BS.

[Silberman]

I am sure such kind of decision will not go well with the regulatory agencies in US! Because what shapshift is trying to achieve, is exactly opposite to what the regulators are expecting around the world! Regulatory agencies are actually trying to make sure they have all data of crypto users at their disposal. But a Dex model will go against that idea!

I hope Shapeshift will go out of the US soil before making any such drastic shift which may make their business unstable! Power to them!

True, however it is nice to see that one of the weakest points in the markets of cryptocurrencies in the form of centralized exchanges are finally losing some power and even they are considering adopting decentralized solutions in order to avoid those ridiculous regulations, I have no doubt that shapeshift lost most of their customer base when they made the move, but I also know they had no choice as most likely they were forced to do it, if they go fully decentralized and their costs remain low they could make a spectacular comeback.

[Broly46]

Yup, plenty of centralised exchange decide to not improve user experience, compliance with kyc, nobody should trust those exchange again and give up their kyc, I already withdraw all fund from the exchange before kyc come into effect, by now I would never send any fund to any other exchange for whatever bs they spill about kyc.

[squatter]

My concern is that ShapeShift is just offloading functionality onto other partially centralized -- even if non-custodial -- services, who themselves may end up being targeted by regulators.

One of their partner exchanges is Bancor. The hack of their "DEX" exemplifies the type of thing I'm talking about:

The Bancor hack involved a smart contract that was compromised by hackers who had its private key. Since the hackers had the private key, they had complete control of the funds so it was not some complicated exploit. The funds were drained from a smart contract that Bancor created. Bancor had to freeze its trading on their BNT platform in order to prevent any further withdrawal of funds. The irony here is that if Bancor was a DEX, it should not be able to freeze user funds. This is more a feature of centralized exchanges.

According to Bancor, the ability to freeze the accounts was built into the Bancor protocol “to be used in an extreme situation to recover from a security breach.” This allows limiting the amount that the hackers could withdraw during a breach. So Bancor has shut down its exchange while it was under investigation.

[The Sceptical Chymist]

I don't know how this kind of decision will be accounted by regulators, but for sure this is pushing SS outside the "walled garden", deemed acceptable for regulators themselves.

That's what I'm wondering, especially since the US government is absolutely pro-KYC when it comes to its citizens playing around with cryptocurrency--just look at Coinbase. 

Then again, I'm completely ignorant as to what rules are on the books on the federal and state levels.  Colorado is a pretty liberal state, but they're still subject to any federal laws that exist.  I never could stand ShapeShift, but I do appreciate their stance against KYC requirements, and it's great that their fighting for anonymity.  I expect the government to fight back, but if and when they do, at least we'll get a sense of what their stance is on crypto buying/selling and the need for KYC.

Pretty good news story, and thanks for posting it OP.

[Darker45]

I laud ShapeShift for this step!

I was a huge fan and user of their services before. It all stopped when they suddenly decided to implement KYC late in 2018. It was sad how another exchange bit the dust under the tightening regulatory measures. That KYC implementation was sorely frowned upon and caused them 95% of their users. I was one of them.

I am both happy and a little worried right now. It is great that ShapeShift decided to shift once again and make another U-turn apparently in favor of privacy and their users' very strong preference, but I wonder how they would appear in the eyes of the regulators now. I hope they won't end up muscled and harassed.

Primarily they need to relocate to some offshore island. Staying in US and denying KYC is utter BS.

This is worrisome but must be deemed urgent.

[SFR10]

I hope Shapeshift will go out of the US soil before making any such drastic shift which may make their business unstable! Power to them!

Looks like they already "started" the process while remaining in the US ^{[I hope it doesn't stay like that]}.

My concern is that ShapeShift is just offloading functionality onto other partially centralized -- even if non-custodial -- services, who themselves may end up being targeted by regulators.

~Snipped~

That's indeed a concern for a lot of us and it would probably be best to use it once they've switched to a fully decentralized structure ^{[like what fillippone mentioned, it takes time]}.
I'm also part of the 95% that stopped using their services as soon as they changed their structure ^{[back in 2018]} and this change would surely make a lot of us go back to using their services if somehow they manage to achieve the so-called fully decentralized model.

[fillippone]

  I expect the government to fight back, but if and when they do, at least we'll get a sense of what their stance is on crypto buying/selling and the need for KYC.

I guess the regulators are now on crackdown of every less than fully regulated exchange.
Insitututional money is pouring in bitcoin, so those players want to be SURE they have no reputational  or economic risk (read: market manipulation) investing in bitcoin.

Regulators now force exchange to hire chain analysis firms following their customers before and after their interactions with the exchange.

Let them live their dream.

When the institutional will be with two feet inside Bitcoins, then with a protocol upgrade like Taproot/Schnoor Cross-Input Signature Aggregation, every transaction will be effectively a coinjoin.
The point is that at that point in the future stopping Bitcoin or making it illegal will be impossible because of all the money invested in it by institutionals, retails or even governates.
 
Bitcoin will be fungible, bitcoin will win.
 

[hugeblack]

Is this approach final and the company will adhere to it, or will it amend it within a short period after it increases its trading volumes?
I do not think that trust is an easy criterion to be acquired like this, especially after they have imposed identity verification as there is no guarantee that they will not keep records and require the user to verify identity at some point.

Perhaps it would have been better for them to launch a decentralized service with sufficient trading volumes bearing their name for those who want to trade less than $ 2000.