The Exchange Apocalypse
**This article explores the recent exchange closures, the recent CryptoBridge KYC fiasco, and the current state of the Masternode market. Read to the end to see where we go from here. **
The Exchange Apocalypse of October 1
At 6:05 AM UTC on October 1, news broke from CryptoBridge that it would be requiring KYC of all of their users, effective immediately. Less than two hours later, CoinExchange announced the closing of their exchange, citing economic reasons as the reason for the closure. Shockingly, around the same time the long-standing Nova Exchange announced their closure on the landing page of their site, allowing users one week to withdraw their funds. At the time of this posting, Nova Exchange is officially closed. All of this comes just two weeks after Escodex announced their closure on September 18th, effective October 15th.
That’s a lot of closures — all in two weeks. All of these exchanges that are closing are (or in the past have been) staples of the Masternode market. If we include Masternode hosting platforms in the list of closures, it gets even longer. There are some players in the market who have long since claimed that the Masternode market is dying, and taken at face value here — they would appear to be right. Exchange and platform closures are certainly not a sign of growth, but the fact of the matter is that a crowded marketplace is bound to experience consolidation. The Great Cleaning has only begun.
In my opinion, these are only growing pains for the Masternode and Crypto Markets in general. As more experienced investors enter into the space, the level of professionalism and transparency demanded of organizations that hold funds is going to (and will continue to) increase. And as Crypto continues to enter the mainstream through adoption by major institutions and businesses such as Amazon, Samsung, Facebook, and Fidelity — governments are going to do what governments do: regulate. This is partially so that the governments can get their “fair share” through taxes, but also to protect investors from scams and fraud.
Inside the Crypto Bridge Fiasco
When I say that these are only growing pains for the industry, I am not condoning or approving of how CryptoBridge handled the situation. When CB announced on February 25, 2019 that KYC would be required for all United States investors, they extended a “grace period” until March 7. This gave United States investors with funds on their platform a whopping ten days to withdraw their funds and close orders. For users in the EU and elsewhere, no such grace period was extended.
An Administrator for CryptoBridge that goes by the Discord handle “crypto” said in the CryptoBridge channel, “No grace period because there is a legal risk that [CryptoBridge] is held liable for enabling users committing possible money, tax evasion and/or terrorism financing in the extreme case while the directive is already implemented.” See the snip below:
The “directive” that they are referencing is likely the European Union’s 5th anti money laundering directive. This directive obligates member states of the EU to cooperate by extending the scope of anti money laundering acts to include virtual currency platforms and wallet providers. For more information, check out this article.
There are several issues with the way CryptoBridge has handled this issue. First and foremost, the AMLD5 does not go into effect until January 2020 — nearly two months from now. The fact that CryptoBridge gave EU users no notice is inexcusable, especially considering the precedent of a grace period for American users. In his Discord post, Crypto seemed to be alluding to the fact that authorities were pressuring CryptoBridge to conform to the AMLD5 order, but no court order or court case has been published or referenced to justify its early implementation. Secondly, they did not publish any information about alternative methods to withdraw funds from the platform without KYC, such as OpenLedger or via the Bitshares blockchain. (For info on how to do this, click here). Third, there are some legitimate questions about the veracity of CryptoBridge’s KYC provider: Fractal.
Apart from asking users for their National ID and proof of residence, the Fractal KYC also asks for Social Security Numbers, as well as an estimation of net worth. While the former pieces of information are common KYC requisites, the latter are not — and it is raising eyebrows. Apart from this, many users have reported issues with Fractal’s service, citing rejection without cause and extremely long delays of a week or more.
What’s extremely interesting is Scott Wehman — a former CryptoBridge Contractor — telling CB users not to KYC.
I reached out to Scott to get his opinion of the situation, as well as to shed light on his reason for leaving CB.
Scott responded by saying, “CryptoBridge has never been about being deliberately malicious. The problem is instead rooted in incompetence and self centered emotional decision making.”
When asked why he would encourage users NOT to KYC, he said, “KYC is only required for CB to collect, not [for users] to comply with… submitting your personal data to KYC creates a long lasting liability for an individual … If hacked, this is outside of that individual’s control.” He went on to say that, “Since you can easily just withdraw your assets from one of the other BitShares gateways without doing so, that is a no-brainer.”
**A separate article will be published shortly containing the full interview with Scott Wehman.**
In my opinion, we will be seeing more and more platforms and exchanges require KYC as the crypto industry matures. However, the way that CryptoBridge has handled this is unacceptable. At best, it is extremely unprofessional. At worst, it is an attempted exit-scam behind the cover of government regulation. This could be a precursor to announcing the closure of CB, allowing them to run away with the unclaimed funds of those who refused KYC. Time will tell.
Where Do Masternode Coins Go Now?
CryptoBridge has been the longtime favorite exchange for Masternode coins. If you’ve been invested in Masternodes for any length of time, chances are you have an account with CB. With the new KYC requirements, that is due to change. In the week following the announcement, trading volumes have declined significantly (not that the volume was ever real anyway.) Combined with the closing of three other staple exchanges, where will the Masternode Industry turn?
While Platforms and Exchanges have been closing and exit-scamming, the team at Midas has been preparing the infrastructure for the next generation of the market. Their Instant Buy feature has been a hit — and has generated nearly 1 BTC / week of volume per week for the market that is 100% real. Instant Buy operates as a sort of OTC exchange, allowing users to purchase Masternode collateral directly and instantly begin receiving stake rewards. Coins that are listed to Instant Buy will be guaranteed a free listing on the new Midas Exchange, which is set to launch next week. Trevor, the CEO of Midas, said that he sees the situation with CB as an opportunity for growth, and that, “Midas will honorably take its place.”
The conditions certainly are favorable for Midas given the newfound lack of competition. Midas is poised to solidify its position as a longstanding and trusted staple of the market, and to become the new cornerstone through its exchange. Its exchange will have other cool features, such as letting users receive rewards while coins are placed in orders, and Instant Sell (the counterpart to Instant Buy).
For more information on Midas, check out their website and Discord.
