In 2019, the US regulatory agencies that used to have a wait-and-see attitude in the past began to gradually exert their efforts. In June and July, many centralized encryption exchanges felt the pressure of supervision and continued to move. At the same time, decentralized exchanges, due to their small size and relatively late start, seem to remain outside the eyes of regulators. Some people can't help but ask, is the increasingly serious regulatory situation going to be the decentralized exchange to gain more market share?
Regulatory strengthening, centralized trading exchanges ushered in compliance storm
BitMEX and Bitfinex are currently under investigation for providing services to US users. According to Coindesk's July 19 report, the Seychelles-based cryptocurrency exchange BitMEX is under investigation by the US Commodity Futures Trading Commission (CFTC). According to the data, Bitmex, a cryptocurrency exchange, saw a $73 million bitcoin outflow within 24 hours.
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According to Coindesk's July 10 report, the New York Attorney General's Office (NYAG) recently submitted a report detailing Bitfinex and Tether allegedly issuing illegal trading securities in New York State as a non-registered securities operator. According to NYAG, Bitfinex and Tether issued unsecured “loans” to specific investors, arguing that each Tether stable currency is supported by $1:1 in the reserve account. The NYAG investigation of Tether's hearing will be held on July 29.
Although other exchanges have not been investigated, but due to regulatory considerations, they are also "rising". Many exchanges have announced a moratorium on offering partial tokens to US users. The crypto exchange Bittrex issued an official announcement on June 8th that since June 21, some markets will no longer be open to US customers and will be transferred to Bittrex International. The cryptocurrency exchange Poloniex announced earlier on May 17 that it would stop offering nine cryptocurrency transactions to US users on the grounds that these tokens may be defined as securities by US regulations.
Domestic head exchanges are no exception. OKEx and Firecoin have always emphasized that they do not provide services to US users. Coin Security also issued a notice on June 14 stating that “the user account will continue to be checked for compliance”, and will eventually stop providing coin transaction services to US users and use Binance.us to serve US users.
Can DEX take the wind?
Although both BitMEX and Bitfinex claim to ban US users, it is obviously not useful to block US IP. In fact, because KYC is not strictly enforced, using VPN to log in to the exchange has become a daily routine for many users. Eliminating non-compliant users from the source requires a comprehensive and rigorous KYC, which is also an important compliance requirement for regulators.
In many centralized exchanges, users need to be KYC certified to conduct transactions, but KYC often cannot trade. If BitMEX does a comprehensive KYC for users, it is natural to avoid having users with US identity information participate in the transaction. Then, for users who do not meet the KYC requirements of the central exchange or do not want to do KYC, will DEX give people a chance to take advantage of it?
First, we need to understand the difference between a centralized exchange and DEX on KYC. The decentralized exchange Newdex told Babbitt that the centralized exchange needs users to replenish assets, which is equivalent to the platform directly storing user assets. In principle, where the user assets are, where KYC should be.
“The DEX platform itself does not store user assets and does not have its own account system. If the wallet has been KYC, then DEX is directly embedded, which can fully balance asset security and user experience.”
In other words, the user's KYC is actually handed over to the wallet . But in fact, many wallet providers do not currently conduct KYC for users. Therefore, as far as the current situation is concerned, users can indeed bypass the KYC problem by turning to DEX, and some users who do not want KYC may indeed flow to DEX.
Then, in the context of increased supervision, if the KYC problem of DEX is not effectively resolved in the short term, will the centralized exchange face a greater threat from DEX? In this regard, Xu Kun, vice president of OK strategy, believes that compliance is an inevitable trend , and has nothing to do with centralization. Which model will be better in the future or determined by market demand .
“Compliance and non-compliance, centralization and decentralization are two different dimensions that cannot be confused. Compliance is an inevitable trend, but the field of encrypted digital assets is new and changing very quickly. Institutions are also advancing in the process of exploration. From the business model, centralization and decentralization have their own advantages. At present, the centralized trading platform is more efficient and more usable, but in the end, which model can dominate, is the market. Demand is determined."
Decentralized exchange Newdex also believes that compliance is the general trend, Newdex is also actively and cooperative wallet to promote the improvement of KYC process, decentralized transactions still need to embrace supervision. At the same time, DEX wants to gain more market share or rely on its own technology development.
"The biggest development opportunity for Dex is based on its own technological development, breaking through the existing DEX can not meet the user's trading needs and the weak trading depth."
In general, although compliance seems to bring more potential users to DEX, what everyone really wants to compete with is the user experience, which is the market demand. Ironing still has to be hard.