Rich Sanders, the Lead Investigator/Principal at CipherBlade, and I talked about the OKEx drama from last October, contemporary problems with crypto exchanges, and how the crypto industry can move past its current stigmas.
Rich fired off a tweetstorm about OKEx malfeasance and the CEO Star Xiu being detained for a period of time by Chinese authorities. Although there is no official reason, it is highly presumed that the exchange CEO’s detainment came about as a result of money laundering on the platform.
Rich mentioned a number of wallet addresses on OKEx that facilitated transactions from known bad-actors in the financial (and moral) space of the world. Rich indicated agencies such as a Hydra Marketplace, PlusToken, and Ferum as just some of the bad actors allowed to trade freely on OKEx. Rich noted that these agencies are well known for their dishonorable money laundering, coin laundering, and even child sex material trading.
Although OKEx was the platform du jours for our talk, we branched into the similar or equally detrimental activities of other exchanges such as Huobi and HitBTC. The geographical significance did not go unnoticed, them all being based in China. Rich denied that there was a round problem with Chinese exchanges considering the largest by trade volume, Binance, is largely operated by Chinese individuals but is highly responsive to ML claims.
That said, he noted a clever ‘jurisdictional gymnastics’ which many exchanges use in order to evade various laws of the physical locality in which they operate the bulk of their business. This is to say that a company registered in British Virgin Isles may actually be headquartered in the United States – to the chagrin of local authorities there.
How to handle the problem
The main issue that jurisdictional gymnastics presents to the market is the correct way to deal with exchanges that are comfy with bad actors around the globe. What some exchange operators may or may not be aware of is that they could themselves be held liable for the actions of individuals who use their platforms. In the case of Kucoin, a platform that Rich pointed out as one with lax KYC requirements, users who are supposed to be banned from the account can easily register an account under a spoof name and email through a VPN to trade and withdraw.
Although he voiced support for the use of VPNs to protect users’ anonymity, there are ways for exchanges to increase their KYC requirements that get around VPNs and more effectively preclude banned individuals from registering in the first place. On the other hand, we briefly discussed the fact that Upbit placed an ineffective ban on users who use a VPN to trade on their platform, which Rich said was “awful.”
In light of the jaw-dropping law breaking that some exchanges engage in, the final point of note that Rich offered was that the business models that support such malfeasance are just ticking time bombs. It won’t be long before the market does not bear those actions.
Goals and solutions
After identifying many of the problems among some exchanges these days, we talked about solutions. Rich gave three specific goals for the crypto trading community to adopt so as to ensure the markets are healthier for all actors: demand transparency with proofs of solvency through blockchain, spend your money on exchanges that provide the most security, and talk about the issues in the markets with your fellow traders.
Watch the full interview to get the full scope of the conversation we had. It was a pleasure talking with Rich, and hopefully we can get more people engaging in making a concerted effort to improving the crypto trading market for everyone.
