A peer-to-peer (P2P) cryptocurrency exchange is an online marketplace that connects buyers and sellers of cryptocurrencies like Bitcoin (BTC). The pla
A peer-to-peer (P2P) cryptocurrency exchange is an online marketplace that connects buyers and sellers of cryptocurrencies like Bitcoin (BTC). The platform enables them to conduct direct business with one another without the need for intermediaries.
When purchasing cryptocurrency on a P2P exchange, a buyer transfers the agreed-upon amount from their account to the seller. The payment is not made between a consumer and a money services company but between two distinct customers.
P2P exchanges were once the lifeline of the crypto ecosystem, owing to the ease of exchange and privacy features that these platforms offered. However, in 2023, some of these key features have driven them to fall under increased scrutiny from regulators.
On Feb. 9, 2023, Finland-based P2P exchange platform LocalBitcoins announced it was closing after 10 years in service. The platform cited tough market conditions owing to the ongoing crypto winter, along with increasing regulatory pressure and declining market share.
The abrupt closure of one of the oldest P2P Bitcoin trading platforms came within weeks of the United States Financial Crimes Enforcement Network (FinCEN) naming the platform as one of the largest Bitcoin counterparties to the Russian-affiliated exchange Bitzlato.
Bitzlato was the target of a significant enforcement action by U.S. officials who accused the platform of violating of Anti-Money Laundering rules and aiding in the evasion of Russian sanctions.
Another prominent P2P Bitcoin exchange platform Paxful, founded in 2015, suspended operations on April 4. The platform cited the ongoing regulatory environment and staff departures as the reason behind its closure. In a Twitter space, CEO Ray Youssef dwelled more on their decision and said even though American regulators have done a lot of catching up in the past five years, they “still don’t get it. They grow more suspicious every day.”
An update from @paxful pic.twitter.com/X3eN5OcKrT
— Paxful (@paxful) April 10, 2023
The ongoing court battle between Artur Schaback and Youssef over the control of the firm was also seen as a prominent reason behind its downfall. According to court filings, the two co-founders are currently at loggerheads over who will manage the business and have made a number of charges against one another. The accusations include, among other things, the theft of corporate finances, money laundering and circumvention of U.S. sanctions on Russia.
In an interview with Cointelegraph, both Schaback and Youssef continued their blame game and pointed fingers at the other person. Youssef claimed his co-founder’s legal tactics “bordered on terrorism” and cost Paxful many employees and directors. On the other hand, Schaback said Youssef took unilateral action to shut down Paxful on April 4, and he had no say in the day-to-day operations of the company for almost 18 months.
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Richard Mico, chief legal officer of global on- and off-ramp crypto platform Banxa, told Cointelegraph that the breakdown of relationships between the co-founders resulting in litigation could be one of many reasons behind the downfall of Paxful. He added that the ever-evolving regulatory scrutiny in the U.S. had made it difficult for the decentralized crypto platforms and P2P exchanges to thrive:
“Paxful has faced regulatory scrutiny in the past over claims of money laundering and fraud on its platform. In May of 2021, the New York State Department of Financial Services (NYDFS) ordered Paxful to bolster its KYC/AML processes. It is very possible that Paxful is fearful of future ongoing investigations and remediations,” Micro told Cointelegraph.
He said that, aside from concerns over shifting regulatory requirements, market conditions are driving significant consolidation in space. However, he is hopeful that “more transparent regulation in the U.S. will enable both P2P and other exchanges to flourish in a manner that strikes the appropriate balance between consumer protection and innovation.”
P2P shutdowns impact emerging economies the most
P2P platforms have been instrumental in flourishing crypto adoption especially in developing nations and offering banking services to the unbanked. Paxful was a pioneer of crypto adoption in Nigeria, and its shutdown hit many users in the country hard.
Freelancers often used the platform to convert their wages to and from Bitcoin and make payments to each other, while traders made use of its escrow service to conduct business. As such, the closure has left many of these users in Nigeria wondering about the future of the domestic crypto marketplace.
The Indian government imposed a banking ban on crypto exchanges in 2019 cutting all banking facilities to such exchanges. However, WazirX, one of the early crypto exchanges in India, introduced its P2P platform to ensure people were still able to trade their assets. Indian crypto traders turned to P2P platforms again…
cointelegraph.com