Casey Wagner

Days after the Commodity Futures Trading Commission announced its civil lawsuit against crypto exchange KuCoin, one Commissioner is questioning whether the agency is overstepping.&nbsp;



Commissioner Caroline Pham in a statement Friday criticized the “aggressive enforcement action,” saying the complaint misinterprets what can be classified as “leveraged trading” and is therefore under the CFTC’s purview.&nbsp;



The complaint, filed Tuesday, classifies KuCoin’s “leveraged tokens,” which represent “shares” in funds controlled by the exchange, according to KuCoin, as digital asset commodity derivatives.&nbsp;



Read more: <a href="https://blockworks.co/news/cftc-alleges-eth-as-commodity-kucoin-lawsuit">CFTC calls ETH a commodity in KuCoin complaint</a>



The CFTC alleges <a href="https://blockworks.co/tag/kucoin">KuCoin</a> violated the Commodity Exchange Act by offering these products, among others, without registration.&nbsp;



“This interpretation fails to distinguish between an investment in a fund, which would typically be a security under the jurisdiction of the [Securities and Exhcnage Commission], and the trading activities of a fund, alleged here to be under the <a href="https://blockworks.co/tag/cftc">CFTC</a>’s jurisdiction,” Pham <a href="https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement032924">wrote</a>.&nbsp;



If the leveraged tokens are <a href="https://blockworks.co/tag/securities">securities</a>, as Pham suggests, regulation of the products would fall under the <a href="https://blockworks.co/tag/sec">SEC</a>’s jurisdiction. The CFTC complaint undercuts securities regulators’ ability to oversee markets, Pham said.&nbsp;



Read more: <a href="https://blockworks.co/news/crypto-clarity-sec-beba-defi">Crypto, it’s time to demand clarity from the courts</a>



“The CFTC’s approach may infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets,” Pham wrote. “Owning shares is not the same thing as trading <a href="https://blockworks.co/tag/derivatives">derivatives</a>.”



While the SEC has set its sights on other crypto exchanges, including Binance and Coinbase, it has yet to file an enforcement action against KuCoin, at least publicly. 



<a href="https://blockworks.co/news/kucoin-settles-with-nyag">KuCoin last December settled charges</a> from New York Attorney General Letitia James’ office for $22 million for allegedly operating an unregistered exchange. That case notably referred to ether as a security, whereas the CFTC, in this latest complaint, lists ether and other cryptocurrencies as commodities.



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CFTC

CFTC Commissioner Pham says KuCoin complaint ‘undermines’ SEC 

Katherine Ross

David Canellis

<h2 class="wp-block-heading">Old tricks in DOJ’s new KuCoin fight</h2>



The Department of Justice and Commodity Futures Trading Commission announced back-to-back lawsuits against Seychelles-based KuCoin Tuesday.&nbsp;



In its criminal suit, the DOJ, among other things, <a href="https://blockworks.co/news/doj-alleged-kucoin-violation-aml-laws">alleges the crypto exchange violated anti-money laundering laws</a>. The DOJ also hit KuCoin founders Chun Gan and Ke Tang with conspiracy charges.&nbsp;



The CFTC, in its separate civil suit, says the exchange operated an unregistered futures and swaps operation.&nbsp;



The DOJ brought the case under the Bank Secrecy Act (BSA), which requires financial institutions — even those not formally based in the US — to keep records and file reports associated with know-your-customer and anti-money laundering efforts.&nbsp;



By skirting KYC and AML policies, the DOJ alleged, <a href="https://blockworks.co/tag/kucoin">KuCoin</a> was able to transmit more than $4 billion of “suspicious and criminal funds” and received $5 billion from operating “in the shadows of the financial markets.”



The language in the unsealed KuCoin indictment is very similar to wording US officials used when discussing Binance, which <a href="https://blockworks.co/news/binance-changpeng-zhao-deal-unpacked">settled US criminal charges in a $4.3 billion deal last November</a> for —&nbsp;you guessed it —&nbsp;alleged BSA violations.&nbsp;



Binance’s “willful failures allowed money to flow to terrorists, cybercriminals and child abusers,” Treasury Secretary Janet Yellen said in November.&nbsp;



While invoking the BSA in charging crypto companies isn’t a new trend, it could become much more common if a bipartisan group of US senators gets their way.&nbsp;



Sen. <a href="https://blockworks.co/tag/elizabeth-warren">Elizabeth Warren</a>, who has likened crypto markets to the “Wild West” and long advocated for legislation that treats crypto companies the same as the traditional financial sector, wants to expand the BSA to apply to nearly all industry participants, including wallet providers and miners.&nbsp;



Read more: <a href="https://blockworks.co/news/legislation-crypto-greatest-enemy">Petty legislation is crypto’s greatest enemy</a>



The Digital Asset Anti-Money Laundering Act, co-sponsored by Warren and Republican Sen. Roger Marshall, would classify some crypto businesses and money services businesses, subjecting them to more anti-money laundering statutes like the BSA. The bill, if passed, would prohibit financial institutions from using or engaging with transactions that have used “anonymity-enhancing technologies” like mixing services and privacy coins.&nbsp;



Critics say the legislation goes too far and places impractical and at times impossible <a href="https://blockworks.co/news/lawmakers-harming-crypto-industry">burdens on industry players</a>, especially miners and validators.&nbsp;



Regardless of whether the bill makes it to the floor — and, let’s face it, it doesn’t stand a chance in an election year — the <a href="https://blockworks.co/tag/doj">DOJ</a> still has a strong case for charging KuCoin with BSA violations, especially with precedent on its side.&nbsp;



The CFTC’s civil suit brings up some interesting points, too, including the naming of ether and litecoin as commodities, which Crypto Twitter absolutely loved.&nbsp;



Calm down, though — it’s still a massive lawsuit at one of the world’s more notable exchanges.



I wonder if the SEC is feeling left out. It’s not too late though; keep an eye on the wires today as we might see a third lawsuit. Or maybe there’s already a settlement in the works. 



— Casey Wagner



<h2 class="wp-block-heading">Data Center</h2>



<ul class="wp-block-list">
<li>Zero-knowledge layer 2 Scroll is placing higher on ETH burn leaderboards, now fourth behind Uniswap, ETH transfers and Tether with 558.76 ETH ($2 million) over the past week.</li>



<li>Solana has kept ahead of Arbitrum for total value locked for most of this month — now easily the fourth-largest DeFi ecosystem with $4.6 billion TVL.</li>



<li>Bitcoin and Solana NFT <a href="https://www.cryptoslam.io/blockchains">volumes</a> are down 42% and 27% this week. Ethereum weekly volumes have meanwhile gained 4%, now $98 billion.</li>



<li>BTC remains in the $70,000 range and ETH is holding on to $3,500 despite some minor slippage on the KuCoin lawsuit news.</li>



<li>COIN shares, on the other hand, appeared to not take news of another exchange lawsuit well, closing about 5% lower Tuesday.</li>
</ul>



<h2 class="wp-block-heading">Twisters hit Tornado Cash trial&nbsp;</h2>



After just two days, there may be more stormy skies ahead for Alexey Pertsev’s trial, according to people in attendance. 



<a href="https://blockworks.co/tag/ethereum">Ethereum</a> developer Ameen Soleimani <a href="https://twitter.com/ameensol/status/1772655426171023564">accused</a> the judges of being “willfully ignorant” when it comes to some of the topics being discussed in court.&nbsp;



Soleimani noted that, during the second day of the trial, it felt like the judges were trying to “trap” Pertsev.



At one point, Pertsev was <a href="https://twitter.com/ameensol/status/1772679594212020712">questioned</a> about his use of the term “lol” when he found out about <a href="https://blockworks.co/news/the-ronin-hacker-made-off-with-625m-of-crypto-but-cashing-out-isnt-so-easy">the $600 million Axie Infinity hack</a>. Pertsev, in response to finding out about it, reportedly tacked on “‘lol’ at the end of a question.”



“Did you find this funny?” the judges asked.&nbsp;



In a US court system, Pertsev would have faced a jury as his lawyers and the prosecutors face off. The Dutch court system operates differently, however, with Pertsev’s case being presented to a three-member judicial panel.



Sjors Provoost, a software developer according to his website, <a href="https://twitter.com/provoost/status/1772694045350859205">said</a> the second day “went incredibly slowly” and like Soleimani, mentioned that some of the questions posed by the panel were “off the mark.”



He expressed disappointment about how “Objection!” wasn’t being used in the trial, unlike the US court system. The term was a favorite of both the defense and prosecution in <a href="https://blockworks.co/news/sam-bankman-fried-found-guilty">Sam Bankman-Fried’s trial last November</a>, and we quickly lost track of how many times it was used over the month-long saga.



— Katherine Ross



<h2 class="wp-block-heading">Things are different, but not too different</h2>



There’s more on-chain volume now than during the fiercest moments of the 2021 bull market —&nbsp;even if most of the space looks more or less the same.



March will mark the biggest ever month for <a href="https://blockworks.co/tag/dexs">DEXs</a>. Decentralized exchanges have posted roughly $236.9 billion in <a href="https://defillama.com/dexs/chains">volume</a>, which is already $2 billion more than November 2021, with nearly a week to spare.&nbsp;



Ethereum, Solana and Binance Smart Chain (BSC) are by far the largest venues, capturing over two-thirds of volume. In 2021, Ethereum and BSC contributed nearly 80%. Solana was still getting off the ground.



Read more: <a href="https://blockworks.co/news/cheatsheet-ethereum-l2s-active-addresses">Cheatsheet: Ethereum and L2s on track to beat Bitcoin for active addresses</a>



On-chain derivatives volumes are also at record highs (one wonders whether the Bank Secrecy Act violations consistently levied at offshore exchanges that offer margin on perps has a role in this).&nbsp;



Still, <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>, now with its own <a href="https://blockworks.co/tag/meme-coins">memecoins</a> and digital collectibles, has lately processed more transactions than at any point in the past five years.&nbsp;



Ethereum in January hit its own milestone of close to 2 million transactions in a single 24 hour period. The price of ether (<a href="https://blockworks.co/price/eth">ETH</a>) traded 50% below its all-time high at the time.



Memecoins aside, novel stuff like Telegram bots and <a href="https://blockworks.co/news/defi-points-farming-crypto-investments">points farming have all boosted on-chain activity</a>. And while there’s a mess of new layer 1s, layer 2s and DeFi apps, it’s more than likely the same projects from last cycle will continue to benefit from new developments moving forward.



The overall rate of change at the top end of the industry is slowing down. More than 80% of the cryptocurrencies in the top-200 didn’t place at all in January 2018. Between the 2018 and 2021 peaks, that figure fell to 66%.



Comparing today to November 2021 shows only 77 different cryptocurrencies that now sit in the top 200. So, nearly two-thirds of the current top-200 were also in the top-200 as markets peaked in 2021.&nbsp;



Just another sign the market is maturing —&nbsp;<a href="https://blockworks.co/news/blackrock-ethereum-memecoins-tornado-cash-dusting">even with all its silliness</a>.



— David Canellis



<h2 class="wp-block-heading">The Works</h2>



HSBC’s got a new <a href="https://blockworks.co/tag/tokenization">tokenization</a> play. The bank is now offering a retail-focused, gold-backed token in Hong Kong, <a href="https://www.scmp.com/business/banking-finance/article/3256859/hsbc-launches-tokenised-gold-retail-customers-hong-kong-government-pushes-publicly-accessible">according</a> to the South China Morning Post.&nbsp;



A US judge tossed a proposed class-action lawsuit against Apple, Inc. over the computing giant’s alleged anti-competitive behavior toward crypto app payments, Law360 <a href="https://www.law360.com/articles/1817996">reports</a>.&nbsp;



Collider <a href="https://collider.com/cold-wallet-steven-soderbergh-oceans-eleven/">chatted</a> with the cast and crew of Cold Wallet, a new crypto-themed thriller that recently debuted at SXSW. The film was “presented” by Ocean’s Eleven director Steven Soderbergh.&nbsp;



Point72 Ventures, the investment firm founded by billionaire Steve Cohen, is backing a blockchain startup focused on vehicle titles. Champ Titles raised $18 million, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-03-27/point72-ventures-latest-bet-is-vehicle-titles-on-the-blockchain">reports</a>.&nbsp;



Stronghold Mining is being sued by an environmental group in Pennsylvania, Reuters <a href="https://www.reuters.com/legal/crypto-miner-pennsylvania-hit-with-lawsuit-over-pollution-bitcoin-mine-2024-03-26/">reports</a>.&nbsp;



<h2 class="wp-block-heading">The Morning Riff</h2>



Blast would probably prefer it if you stopped asking it to rollback the chain.



Luckily, whoever <a href="https://twitter.com/PacmanBlur/status/1772871466935013701">stole</a> $97 million from NFT project Munchables returned the funds.&nbsp;



No need for Blast, which launched earlier this year, to show how the sausage is made by reverting its ledger back before the hack. And there’s no need to develop billion-dollar smart contracts on the fly —&nbsp;by all accounts a knuckle-whitening endeavor.



<a href="https://blockworks.co/tag/layer-2-2">Layer 2s</a> may be necessary evils to scale Ethereum, but sticky incidents like these are bound to repeat in the near future.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">”noooo we have to pretend it was decentralized” why the hell should we do that for??? if anything this is a great time to be truthful about what this system is so that everyone understands what they’re getting into&mdash; Eric Wall | OP_😺 (@ercwl) <a href="https://twitter.com/ercwl/status/1772779794091921421?ref_src=twsrc%5Etfw">March 27, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Ethereum got away with undoing The DAO hack nearly a decade ago without technically rolling back the chain. But it was a deeply controversial —&nbsp;and consequential —&nbsp;event.



It seems unlikely that the current crop of layer-2s, which includes <a href="https://blockworks.co/news/base-coinbase-l2-success">Coinbase’s increasingly popular L2, Base</a>, can forever avoid flexing any god-mode powers they possess.



— David Canellis



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alexey pertsev

Bank Secrecy Act vs crypto: A new DOJ lawsuit revives old tactic

The Commodity Futures Trading Commission filed a complaint against the companies that operate the crypto exchange KuCoin.&nbsp;



“The complaint charges KuCoin illegally dealt in off-exchange commodity futures transactions and leveraged, margined or financed retail commodity transactions; solicited and accepted orders for commodity futures, swaps, and leveraged, margined or financed retail commodity transactions without registering with the CFTC,” the press release <a href="https://www.cftc.gov/PressRoom/PressReleases/8884-24?utm_source=govdelivery">said</a>.&nbsp;&nbsp;



In the CFTC’s complaint against the exchange, the regulator says that KuCoin allowed investors to trade <a href="https://blockworks.co/tag/commodities">commodities</a> including bitcoin, ether and litecoin.&nbsp;



“These actions brought <a href="https://blockworks.co/tag/kucoin">KuCoin</a> squarely within the <a href="https://blockworks.co/tag/cftc">CFTC</a>’s authority and required that KuCoin register with the CFTC and comply with all applicable regulations,” the suit said.



Read more: <a href="https://blockworks.co/news/doj-alleged-kucoin-violation-aml-laws">DOJ accuses crypto exchange KuCoin of skirting anti-money laundering laws</a>



The CFTC said it seeks “disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations, as charged.”



The CFTC’s complaint follows a suit from the Department of Justice. The <a href="https://blockworks.co/tag/doj">DOJ</a> targeted the exchange and two co-founders, alleging that the defendants violated the Bank Secrecy Act.



The Commission said that from July 2019 to June 2023 the exchange didn’t implement know-your-customer (<a href="https://blockworks.co/tag/kyc">KYC</a>) procedures. However, the KYC procedures offered to US customers were allegedly a “sham” and “did not prevent US customers from trading commodity interests and derivatives on the platform.”



Read more: <a href="https://blockworks.co/news/ether-commodity-or-not">Ether is the Schrödinger’s cat of crypto</a>



The DOJ alleged that KuCoin failed to require KYC, and then — in July 2023 — the platform <a href="https://blockworks.co/news/kucoin-enforces-kyc-verification">adopted a KYC program</a> after it was made aware of a government investigation.



Because the exchange didn’t enforce anti-money laundering policies, KuCoin transmitted over $4 billion of “suspicious and criminal funds” and received $5 billion from operating “in the shadows of the financial markets.”



The CFTC and the DOJ actions aren’t the first government actions the exchange has faced. In December, <a href="https://blockworks.co/news/eth-security-alleges-nyag">KuCoin settled with the New York Attorney General’s office</a> for $22 million. 



Late last year, both the DOJ and CFTC targeted another crypto exchange — <a href="https://blockworks.co/tag/binance">Binance</a> — in a <a href="https://blockworks.co/news/doj-indictment-binance-changpeng-zhao">multi-billion dollar settlement</a>. Binance was also accused of anti-money laundering violations.



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CFTC calls ETH a commodity in KuCoin complaint

The US government has accused crypto exchange KuCoin and two founders of violating anti-money laundering laws.&nbsp;&nbsp;



KuCoin founders Chun Gan and Ke Tang were each charged with one count of conspiracy to violate the US Bank Secrecy Act and one count of conspiracy to operate an unlicensed money transmitting business.&nbsp;



Neither have been arrested, according to the US Department of Justice.



“As today’s indictment alleges, KuCoin and its founders deliberately sought to conceal the fact that substantial numbers of US users were trading on KuCoin’s platform,” US Attorney Damian Williams said in a <a href="https://www.justice.gov/usao-sdny/pr/prominent-global-cryptocurrency-exchange-kucoin-and-two-its-founders-criminally">statement</a>.



Read more:<a href="https://blockworks.co/news/lawmakers-harming-crypto-industry"> Former government officials say DAAMLA could harm US crypto industry</a>



By skirting <a href="https://blockworks.co/tag/aml">AML</a> policies, the DOJ alleged, <a href="https://blockworks.co/tag/kucoin">KuCoin</a> was able to transmit more than $4 billion of “suspicious and criminal funds” and received $5 billion from operating “in the shadows of the financial markets.”



The <a href="https://blockworks.co/tag/doj">DOJ</a> said that KuCoin, Gan and Tang “affirmatively attempted to conceal the existence of KuCoin’s US customers in order to make it appear as if KuCoin was exempt from US AML and <a href="https://blockworks.co/tag/kyc">KYC</a> [know-your-customer] requirements.”



US customers were allegedly “actively prevented” from identifying themselves when they opened accounts.



“Indeed, until at least July 2023, KuCoin did not require customers to provide any identifying information. It was only in July 2023, after KuCoin was notified of a federal criminal investigation into its activities, that KuCoin <a href="https://blockworks.co/news/kucoin-enforces-kyc-verification">belatedly adopted a KYC program</a> for new customers,” the DOJ said.



Last December, <a href="https://blockworks.co/news/kucoin-settles-with-nyag">KuCoin settled with the New York Attorney General</a> for $22 million and announced that it would stop operating in New York after it was accused of not properly registering with the state. $16.7 million of the payment went to refunds for New York customers.&nbsp;



The Tuesday action against KuCoin marks the first time that the DOJ has targeted a crypto exchange since it announced a <a href="https://blockworks.co/news/binance-regulators-settle-criminal-case">multi-billion dollar settlement with Binance</a> late last year.



As part of its settlement, former CEO Changpeng Zhao stepped down and is set to be sentenced next month. <a href="https://blockworks.co/news/doj-indictment-binance-changpeng-zhao">Binance was also accused of AML violations</a>.



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DOJ accuses crypto exchange KuCoin of skirting anti-money laundering laws

KuCoin will exit the New York market, pay $22 million to settle with the New York Attorney General’s office.&nbsp;



The company will refund around 150,000 New York customers using $16.7 million of that total sum, and $5 million will go directly to the state.



“Unregistered offshore crypto platforms pose a risk to investors, consumers and the broader economy,” <a href="https://ag.ny.gov/press-release/2023/attorney-general-james-secures-more-22-million-cryptocurrency-platform-operating">said</a> Attorney General Letitia James in a press release.



The crypto exchange, based in the Seychelles, was sued by the NYAG in March. James accused the exchange of not registering before allowing users to buy and sell crypto on its platform. 



In the original lawsuit, the NYAG alleged that <a href="https://twitter.com/lyu_johnny/status/1734576431903211831">ether constitutes a security</a>. The March lawsuit claimed that KuCoin’s registration should have been filed before it offered ETH, LUNA or TerraUSD.



According to Tuesday’s press release, the NY AG’s office was able to create an account “to buy and sell cryptocurrencies, including popular tokens like ETH, LUNA, and UST. However, New York law requires securities and commodities brokers providing services in New York to register with the state…”



In a post on X, <a href="https://blockworks.co/tag/kucoin">KuCoin</a> CEO Johnny Lyu confirmed the news, saying that impacted users — those based in New York — will receive communication in the form of an email or text “in the next 10 days.”



“I also want to give you a heads-up about potential rumors surfacing in the next few weeks. Please stick to the official website of KuCoin for accurate information,” Lyu <a href="https://twitter.com/lyu_johnny/status/1734576431903211831">added</a> in a follow up post.



The settlement comes a few weeks after the US Department of Justice announced a multi-billion dollar settlement <a href="https://blockworks.co/news/sec-argues-binance-law-subversion">against crypto exchange Binance and its former CEO</a>, Changpeng Zhao. The NY AG&#8217;s office has actively pursued lawsuits and legal action against crypto companies that have allegedly violated New York laws.&nbsp;



In October, James <a href="https://blockworks.co/news/genesis-gemini-nyag-lawsuit">filed a suit against Digital Currency Group</a>, Gemini and Genesis alleging that the Gemini Earn program constituted an investment contract.



It also <a href="https://blockworks.co/news/coinex-to-exit-new-york">went after Hong Kong-based CoinEx</a>, which subsequently settled with the state for $1.7 million and exited New York.



Updated Dec. 12, 2023 at 11:22 am ET: Added additional context throughout.



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KuCoin settles with New York AG for $22M, will depart New York

The United Kingdom’s Financial Conduct Authority targeted 146 crypto companies in a new warning, following the rollout of the new promotional rules which require companies to register with the FCA.



The warning, which is the first since the rules went into effect, is the latest in a series from the FCA to attempt curbing illegal financial promotions targeting UK customers.&nbsp;



As part of the warning, the FCA published a warning list of those who have not registered with the FCA. The list includes KuCoin and Huobi, among others.



“We take a risk-based approach, so not all firms of potential concern will be added straight away. This list will be continually updated as we identify firms which may be illegally communicating crypto asset promotions and are failing to engage with us constructively,” the FCA <a href="https://www.fca.org.uk/news/statements/fca-issues-146-alerts-first-24-hours-new-crypto-marketing-regime">said</a> in its warning.



Some companies, including OKX and Binance,<a href="https://blockworks.co/news/okx-uk-marketing-fca-compliance"> announced that they’re working to comply</a> with the FCA’s promotional rules.&nbsp;



Komainu joined the ranks of <a href="https://blockworks.co/tag/fca">FCA</a>-registered companies on Friday, Oct. 6. Under the new rules, Komainu is registered as a custodian wallet provider. 



“This is a key regulatory milestone as the UK remains one of the most important hubs for financial technology and innovation that will spur the convergence of traditional and decentralized finance,” CEO Nicolas Bertrand said.



<a href="https://blockworks.co/news/paypal-halts-uk-crypto">PayPal announced in August that it was “temporarily” pausing</a> the ability of UK customers to buy crypto on its platform so that it could ensure it followed the new regulations. PayPal is aiming to offer the services again in 2024, according to reports.&nbsp;



ByBit also <a href="https://blockworks.co/news/bybit-uk-market-activity-suspended-crypto-regulations">announced that it would be suspending services</a> in late September.&nbsp;



“Bybit has made a choice to embrace the regulation proactively and pause our services in this market,” it said in a blog post at the time.&nbsp;



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FCA issues another warning to unregistered crypto firms as promotional rules take effect

Sebastian Sinclair

Several exchanges popular throughout Asia have updated their terms of service, tightening know-your-customer (KYC) protocols ahead of upcoming regulatory changes across the region.



Seychelles-based Bitget said Sunday it was updating its KYC measures in a bid to comply with requirements, including the city-state’s recently updated guidelines for banks.



Directives from the Monetary Authority of Singapore (MAS) — both a central bank and regulator — are advising financial institutions to put in place appropriate <a href="https://blockworks.co/news/on-chain-monitoring-risk-management">risk management procedures</a>.&nbsp;



It comes as MAS shut down Digital Payment Token (DPT) service providers from “facilitating lending and staking of DPT tokens by their retail customers,” <a href="https://blockworks.co/news/singapore-thailand-ban-crypto-staking">Blockworks previously reported</a>.



As such, Bitget, alongside KuCoin and OKX — considered to be some of the more popular platforms for Asia-based crypto traders, including Singapore — is advising users to update their KYC verification ahead of next month.



“Starting from Oct. 1, users who have not completed level 1 KYC verification will only be able to withdraw, cancel orders, redeem subscriptions and close positions, being restricted from creating new trading orders,” the exchange said.



KuCoin and OKX, both headquartered in Seychelles following China’s crackdown on digital assets in 2017, have also recently updated their KYC policies. Bitget currently ranks 16th among exchanges ranked by trading volume over a 24-hour period, Coingecko data <a href="https://www.coingecko.com/en/exchanges">shows</a>. OKX and KuCoin rank 7th and 22nd respectively.



While KuCoin had implemented KYC on its platform back in 2018, the exchange said it has strengthened its identity verification procedures — with users needing to upload documents and complete face checks. The changes are expected to take effect at the <a href="https://www.kucoin.com/support/360015102254">end of this month</a>.



OKX, which also updated its terms last week, said users would need to submit a selfie using a government-issued ID — to be stored by the exchange — in order to use all its services.



While Singapore represents the clearest jurisdiction digital asset service providers are shifting focus towards, it isn’t the only one.&nbsp;



Earlier this year, Japan <a href="https://blockworks.co/news/japan-crypto-anti-money-laundering-rules">sought to tighten anti-money laundering measures</a> designed to better track crypto transactions, answering calls from other countries.



Also, starting next year, South Korea&#8217;s <a href="https://blockworks.co/news/financial-statements-must-include-crypto-south-korea-regulator">Financial Services Commission</a> will require companies to include details about their crypto holdings, anticipated value, and related business models in their financial statements to align crypto accounting with conventional financial reporting.



All measures point towards a tightening regulatory environment across the region, with crypto service providers adhering to, or seemingly positioning for, changes long-overlooked by financial officials.



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Asia

Regulatory landscape across Asia prompts exchanges to enhance KYC measures

James Cirrone

KuCoin said its mining pool will go offline “until further notice” in less than two weeks from Wednesday.



The pool, which supports proof-of-work coins such as bitcoin and litecoin, will suspend operations on Aug. 15 at 12 pm ET.&nbsp;



KuCoin told Blockworks the move is the result of shifting priorities for its broader business.



“The decision to suspend operations of KuCoin Pool was made to align with our evolving business strategy of focusing on core businesses and providing users with a safer and more user-friendly trading platform,” a KuCoin representative told Blockworks.



In its <a href="https://www.kucoin.com/announcement/en-announcement-kucoin-pool-to-temporarily-suspend-operations">announcement</a>, the crypto exchange recommended that users move their miners to alternative mining pools before the Aug. 15 deadline. The firm also advised users to back up their mining data before Aug. 27.



“We wish to emphasize that the security and integrity of your assets are our utmost priority. Throughout this suspension, you will retain complete access and control over your assets, and all other KuCoin offerings remain operational as usual,” the exchange wrote in a statement.



According to <a href="https://btc.com/stats/pool">BTC.com</a>, KuCoin’s mining pool is the ninth-largest in terms of hash rate share, comprising 1.2% of the network total over the past three days. 



KuCoin’s bitcoin mining pool produced 8.24 exahashes per second (EH/s) by the time of publication, while the litecoin pool produced 3.84 terahashes per second (TH/s).&nbsp;



By comparison, <a href="https://blockworks.co/news/bitcoin-miners-growth-2023">Riot Platforms reported a deployed hash rate of 10.7 EH/s as of June 30</a>.



KuCoin has faced other headwinds in the last few months. <a href="https://blockworks.co/news/eth-security-alleges-nyag">New York Attorney General Letitia James sued the crypto exchange in January</a>, and more recently, <a href="https://blockworks.co/news/layoffs-at-atmta">reports emerged of layoffs</a> at the company. Representatives for KuCoin have denied the characterization of layoffs.



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crypto mining

KuCoin’s mining pool to halt operations ‘until further notice’

Reports of layoffs at crypto companies dominated the headlines this week.&nbsp;



Among them is Blockchain gaming company ATMTA, which cut positions by about 80% compared to its peak in late 2022.&nbsp;



After laying off 122 employees in the latest round, ATMTA CEO Michael Wagner said in a letter that a core team of 45 people would remain. That team, Wagner said, will focus on building Star Atlas, an upcoming blockchain-based game.



Wagner reiterated that ATMTA was impacted by the FTX collapse, which perhaps spurred <a href="https://medium.com/the-hologram/star-atlas-developer-atmta-begins-staff-reductions-e2edbbda516f">the first round of layoffs</a> that began in December. <a href="https://www.linkedin.com/posts/estefanr_today-marks-the-end-of-my-journey-with-star-activity-7009637343762468864--NH7/?utm_source=share&amp;utm_medium=member_desktop">One notable departure</a> was <a href="https://www.linkedin.com/in/estefanr/">Estefan Vazquez</a>, the former head of growth for Star Atlas.



“We lost approximately $15 million from our treasury with the collapse of FTX, which represented a significant portion of our liquid cash balance. Even with the recovery in January of a sizable portion of those funds, our runway was greatly reduced,” Wagner wrote in his letter.



KuCoin is reportedly laying off about 30% of its workforce of nearly 1,000 employees, crypto journalist Colin Wu&nbsp;<a target="_blank" href="https://twitter.com/WuBlockchain/status/1683821842447106048" rel="noreferrer noopener">reported</a>&nbsp;Tuesday. Wu cited three employees with knowledge of the situation.



When reached for comment following Wu&#8217;s report, KuCoin denied the layoff characterization.



In June, <a href="https://blockworks.co/news/kucoin-enforces-kyc-verification">KuCoin made know-your-customer verification mandatory</a>, a move that came months after <a href="https://blockworks.co/news/eth-security-alleges-nyag">New York Attorney General Letitia James sued the Seychelles-based company</a> for operating as an unregistered securities and commodities broker-dealer.



<h2 class="wp-block-heading">Block makes changes to its board</h2>



Block, the financial services company behind Cash App, Square and Spiral, appointed <a href="https://www.linkedin.com/in/nnarula/">Neha Narula</a> to its board of directors on Thursday, according to an <a href="https://www.sec.gov/Archives/edgar/data/1512673/000119312523196098/d539859d8k.htm">SEC filing</a>.&nbsp;



Block also increased the size of the number of directors on the board from 11 to 12 with Narula’s appointment.&nbsp;



Narula was selected for her “valuable experience” in the field of Bitcoin and open-source technology, according to the filing. She has served as the director of the Digital Currency Initiative at the Massachusetts Institute of Technology since January 2017.&nbsp;



“Neha’s passion for building intuitive, scaled systems to move money across the Internet efficiently fits into our company’s purpose,” Block CEO Jack Dorsey said in a <a href="https://www.sec.gov/Archives/edgar/data/1512673/000119312523196098/d539859dex991.htm">statement</a>.&nbsp;



<h2 class="wp-block-heading">Other notable hirings</h2>



<ul class="wp-block-list">
<li><a href="https://blockworks.co/tag/wyoming">The Wyoming Stable Token Commission</a> is looking for an <a href="https://www.governmentjobs.com/careers/wyoming/jobs/4126743/stc-0419-executive-director-cheyenne-or-laramie?keywords=stable%20token&amp;pagetype=jobOpportunitiesJobs">executive director</a>. The job involves managing and leading the new government agency.</li>



<li>The UK’s National Crime Agency is <a href="https://www.civilservicejobs.service.gov.uk/csr/jobs.cgi?jcode=1867965">hiring</a> an investigations manager for cryptocurrency and digital assets.</li>



<li>Former Dapper Labs executive <a href="https://www.linkedin.com/in/alison-kutler-0924001/">Alison Kutler</a> has left the NFT world to take a position with FanDuel. She’ll serve as the company’s sustainability and responsible gaming head. <a href="https://blockworks.co/news/nft-woes-spell-trouble-for-dapper-labs">Dapper Labs laid off 51 employees and contractors</a> in mid-July.</li>
</ul>



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Block

Crypto hiring: More layoffs at ATMTA, Dorsey’s Block gains new board member

KuCoin is making know-your-customer verification mandatory to better comply with regulations.



The exchange will restrict users who don’t go through know-your-customer, or KYC, registration from accessing certain features. According to a press release, non-KYC users will only be able to use “spot trading sell orders, futures trading deleveraging, margin trading deleveraging, KuCoin Earn redemption, and ETF redemption.”&nbsp;



Withdrawals will still be available, but deposit services will not.



“With the development of the cryptocurrency industry, crypto has gradually moved from a geek towards mass adoption. However, this process has also brought about certain security issues concerning on-chain assets,” KuCoin CEO Johnny Lyu <a href="https://www.businesswire.com/news/home/20230628022769/en">said</a> in a statement.&nbsp;



The new KYC registration goes into effect on July 15.&nbsp;



Binance, in 2021, made a similar move. It <a href="https://www.binance.com/en/support/announcement/important-changes-about-binance-identity-verification-51bf294e26324211a4731ca998e110ca">announced</a> that new users had to go through an “intermediate verification” process to access Binance’s services and products. Through the process, users had to verify their country of residence and nationality and provide a government-issued ID.&nbsp;



KuCoin’s move comes after it faced legal action from multiple countries.&nbsp;



In March of this year, <a href="https://blockworks.co/news/eth-security-alleges-nyag">New York Attorney General Letitia James sued KuCoin</a>, claiming that the Seychelles-based company operated in New York without registering as a securities and commodities broker-dealer.&nbsp;



KuCoin, however, was not the only crypto company targeted by James as the <a href="https://blockworks.co/news/crypto-fraud-needs-order">NYAG cracks down on crypto</a>. 



In June 2022, Canada’s Ontario Securities Commission <a href="https://blockworks.co/news/canadian-regulator-fines-bybit-kucoin-for-securities-law-violations">banned KuCoin from operating in the Ontario province</a> and fined the company 2.1 million Canadian dollars, or roughly $1.6 million.



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Kucoin

KuCoin enforces mandatory know-your-customer verification

New York Attorney General Letitia James became the first regulator in the US to claim in court that ethereum is a security in a lawsuit against exchange KuCoin.&nbsp;



Seychelles-based KuCoin has been operating in New York without registering as a securities and commodities broker-dealer, James alleged in the <a href="https://ag.ny.gov/press-release/2023/attorney-general-james-continues-crackdown-unregistered-cryptocurrency-platforms">suit</a>.&nbsp;



KuCoin facilitates trading of ETH, James added, “a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH.” The exchange should have registered before offering ETH, LUNA and TerraUSD — all of which fall under the securities classification, according to James.



However, the NYAG may not have the final say on the issue. Rostin Behnam of the CFTC told the Senate Agriculture Committee as recently as Wednesday that <a href="https://blockworks.co/news/ethereum-stablecoins-commodities-not-securities-cftc">ETH is in fact a commodity</a>, not a security. 



“We would not have allowed the Ether futures product to be listed on a CFTC exchange if we did not feel strongly that it was a commodity asset,” he explained.



SEC leaders have made similar statements. In 2018, <a href="https://blockworks.co/news/sec-emails-highlighting-alleged-conflict-of-interest-set-to-take-center-stage-in-ripple-trial">William Hinman</a>, the then-Director of Corporate Finance at the SEC, said in a speech that both bitcoin and ETH are not securities. His justification was that bitcoin is “decentralized” and ETH, despite its 2014 initial coin offering, had become “sufficiently decentralized” over the past four years to make it a non-security.&nbsp;



The Office of the State Attorney General (OAG) confirmed KuCoin’s alleged unlawful actions because OAG Detective Brian Metz has been transacting on the exchange from New York since May 2022, the lawsuit states.&nbsp;



KuCoin’s lending and staking product, KuCoin Earn, is also an unregistered security offering, the lawsuit alleges.&nbsp;



The OAG served KuCoin a subpoena on Jan. 10, 2023 but respondents did not reply and failed to appear to testify on the date specified in the subpoena, the lawsuit claims.&nbsp;



The lawsuit is similar to a suit brought against exchange <a href="https://ag.ny.gov/press-release/2023/attorney-general-james-sues-cryptocurrency-platform-failing-register-new-york">CoinEx</a> in February alleging the exchange offered trading services for tokens including AMP, LUNA and LBC, all of which the Attorney General’s office says are securities.&nbsp;

ether

New York AG Alleges ETH is a Security in KuCoin Lawsuit

<div id="highlights-block_62ceb4c0f75f0" class="highlights">
 <ul>
 <li>KuCoin found sentiment is shifting negative among Saudi Arabian crypto investors</li>
 <li>76% of local digital asset holders have less than one year’s experience in the market</li>
 </ul>
 
</div>



Bitcoin discourse has been swept by a fresh conspiracy-meme that posits Saudi Arabian investors are ready to bid billions on the top cryptocurrency, saving us all from the ongoing bear market.



Such a move would diversify the Kingdom’s reserves away from oil into ‘digital gold,’ securing its financial future in a world that hopes to one day shed its fossil fuel dependency — or so goes the theory.



But if a recent report from cryptocurrency exchange KuCoin is anything to go by, it’s mostly unfounded.



Based on a commissioned survey, KuCoin found the estimated total number of Saudi crypto investors has remained relatively stable all year, at around 3 million. But their sentiment is shifting negative, the exchange found.



The report states: “In the first quarter, around half (49%) of crypto investors intended to increase investment in crypto over the coming six months, followed by the bearish market when we saw the intention slightly drop in the second quarter of 2022, as more investors changed their strategies.”



KuCoin highlighted crypto adoption in Saudi Arabia is lower than the global average, and comes in third across the Arab world in terms of raw investor numbers. Growth in the number of registered KuCoin users from Saudi Arabia did however lead the other <a href="https://www.gcc-sg.org/en-us/AboutGCC/MemberStates/pages/Home.aspx" target="_blank" rel="noreferrer noopener">GCC countries</a> throughout 2021.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">If you haven&#39;t been living under a rock for the last week, <a href="https://twitter.com/TheSaudisNFT?ref_src=twsrc%5Etfw">@TheSaudisNFT</a> is the hottest collection in town, #2 volume on <a href="https://twitter.com/opensea?ref_src=twsrc%5Etfw">@opensea</a> just under <a href="https://twitter.com/cryptopunksnfts?ref_src=twsrc%5Etfw">@cryptopunksnfts</a> <a href="https://twitter.com/hashtag/MAXBIDDING?src=hash&amp;ref_src=twsrc%5Etfw">#MAXBIDDING</a> <a href="https://t.co/hxPx3vxO2K">pic.twitter.com/hxPx3vxO2K</a>&mdash; Rotem Yakir 🍊 (@yakirrotem) <a href="https://twitter.com/yakirrotem/status/1545873060112252929?ref_src=twsrc%5Etfw">July 9, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



A majority (63%) of Saudi crypto investors are men, according to the survey, and persons below 30 years of age make up at least one third of all investors, with that figure rising to 37% throughout this year’s second quarter.



The report noted that the high proportion of fresh investors across Saudi Arabia is unique to their profile.&nbsp;



“Roughly three-quarters (76%) of crypto investors have less than one year of experience in crypto investment, including half (49%) of investors who first started trading crypto in the past six months, suggesting strong demand for crypto education in the market,” KuCoin wrote.



<h3 class="wp-block-heading">Saudi investors adopt trading bots to beat bear market</h3>



Saudi Arabians are generally investing in cryptocurrency for the long-term, the report found. 51% of surveyed digital asset holders are in crypto as they believe it’s the future of finance, while 44% reckon crypto can reap higher returns than other types of financial investments.



Although, KuCoin relayed that in this year’s second quarter, 42% of crypto investors adopted auto-trading strategies — such as trading bots — to see them through the bear market, a 7% rise from Q1.&nbsp;



Cryptocurrency exists in a legal gray area across the country, with local banks banned from handling transactions related to digital assets since 2018. And while there are no legal dangers for trading cryptocurrency, Saudi-based investors often pay close attention to what types of investments are approved under Islamic law (halal).



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/_diuIiQUGG9YRKpcNOmwy-NahZTJQCZuhRgpqNZn887zMDAY2gpnewob_RkwGhYwJf_04kyJSVjVgjJLt6PAKmogYtO_wW-Zdc_M5dOu6dEOEAo0W8K1XKFpfux15XCxiLXmEr82iymY822olH5sLJc" alt=""/><figcaption>Source: <a href="https://www.kucoin.com/blog/kucoin-into-the-cryptoverse-reveals-increase-in-number-of-saudi-arabian-crypto-investors-adopting-auto-trading-strategies-in-bearish-market">KuCoin</a></figcaption></figure>



According to KuCoin’s report, which was based on just 539 survey respondents, almost half of Saudi crypto investors buy crypto with fiat and spot trade every month, as it’s the only form of crypto trading considered halal by some scholars in the Arab world.&nbsp;



Staking, futures trading and margin trading — involve interest and even gambling — are less popular.



As for what investors plan to do with their potential gains, 42% said they plan to improve their families’ living conditions, with other goals including buying a new house, saving for retirement or emergencies and other creature comforts like traveling and shopping.



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bear market

‘Saudis Bidding’ Meme Undermined by Crypto Investor Survey

Shalini Nagarajan

<div id="highlights-block_62b4597cb0d8f" class="highlights">
 <ul>
 <li>“Unlike KuCoin, Bybit responded to the OSC’s enforcement action,” the OSC said</li>
 <li>KuCoin is barred from operating in Ontario, while Bybit continues to work on registration</li>
 </ul>
 
</div>



The Ontario Securities Commission (OSC) has hit two foreign cryptocurrency exchanges with enforcement actions after finding they failed to comply with securities laws there. KuCoin has been banned from operating in the Ontario province, while Bybit agreed to pay a fine as it works with the authority to register appropriately.



“Bybit and KuCoin both operate unregistered cryptoasset trading platforms and allowed Ontario investors to trade securities without a prospectus or any exemption from the prospectus requirements,” the regulator said in a <a href="https://www.osc.ca/en/news-events/news/osc-holds-global-crypto-asset-trading-platforms-accountable" target="_blank" rel="noreferrer noopener">statement</a> on Wednesday.



KuCoin, based in Seychelles, has been ordered to pay an administrative penalty of about C$2.1 million ($1.6 million), including investigative charges. Meanwhile, Singapore-based Bybit has reached a settlement with the regulator for about $2.5 million.



“Foreign cryptoasset trading platforms that want to operate in Ontario must play by the rules or face enforcement action,” Jeff Kehoe, OSC’s enforcement director, said.&nbsp;



Bybit has agreed to continue working with the OSC to register its platform. In the event that registration talks fail, the exchange will close its operations with Ontario, the regulator said.&nbsp;



“Unlike KuCoin, Bybit responded to the OSC’s enforcement action, maintained an open dialogue, provided requested information, and committed to engaging in registration discussions,” the regulator said.



Existing Bybit retail customers in Ontario will be asked to close their positions in some restricted products involving leverage, margin or the extension of credit. The exchange <a href="https://cms.blockworks.co/bybit-to-slash-staff-citing-turbulent-markets/" target="_blank" rel="noreferrer noopener">told Blockworks</a> this week it’s looking to cut employee headcount by removing overlapping functions. 



The penalties come a little more than a year after the Canadian regulator warned exchanges operating in Ontario to contact the OSC by April 19, 2021 for registration or face enforcement action.



“Despite this warning, Bybit and KuCoin did not contact the OSC by the deadline and continued operations in Ontario,” the regulator said.



Authorities have been keeping a closing eye on cryptocurrency products as interest grows in the relatively nascent investment space. Earlier this year, crypto lender BlockFi agreed to pay <a href="https://cms.blockworks.co/crypto-lender-blockfi-to-pay-100m-in-fines-to-us-regulators/" target="_blank" rel="noreferrer noopener">$100 million in penalties</a> to the Securities and Exchange Commission over allegations it illegally offered a high-interest yield product. 



The rulings could lead to hesitation among North American investors to invest in cryptoassets as a result of the jurisdiction&#8217;s harsh regulatory framework, according to Sheraz Ahmed, managing partner at STORM Partners.&nbsp;



He thinks the exchanges themselves won’t be too concerned about financial penalties, as they have been operating successfully for years. “Fines are always preferable to complete bans, and sometimes it is better to ask for forgiveness than permission,” he said.



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