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ShapeShift CEO: Why we are transitioning to a decentralized trading platform

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The established trading platform ShapeShift is about to introduce a decentralized trading protocol and reduce KYC.

Original title: "DEX wins another game? The old CEX ShapeShift will transform into a decentralized exchange"

Original source: Babbitt

Yesterday, an old exchange established for more than 6 years ShapeShift announced its full embrace of DeFi, integrated decentralized protocols, and abandoned the KYC it started in 2018. The move was well received by the community. Currently, ShapeShift, based on the decentralized protocol, only supports the transactions of Ethereum and ERC20 tokens, and will open the transactions of other mainstream currencies in the future. The old version of ShapeShift is still running, but will be decommissioned shortly.

Here is the announcement from ShapeShift CEO Erik Voorhees:

Today, ShapeShift Announced that it has integrated the decentralized trading protocol and will terminate its customer trading business for more than 6 years. Due to a fundamental change in our business model, ShapeShift users are no longer required to provide us with personally identifiable information.

But first, let's remember what it's all for...

With With the birth of Bitcoin, economic interaction became possible under these three principles:

Decentralization
Open
Immutable

The emergence of these few principles sparked a renaissance, and now all of finance is reimagined. This is a global, community-led initiative: no leader at the helm, no city claiming progress, no country holding the keys to it.

Our goal is simple: to achieve prosperity for all humanity through a value foundation of honesty and neutrality.

For more than six years, ShapeShift has had the honor of helping usher in an open, autonomous financial renaissance. Part of a response to the MtGox disaster, ShapeShift started as a simple tool for people to safely and easily convert one digital asset into another — trade it — with no counterparty risk.

This is a level of consumer protection that no bank has ever attempted, let alone achieved, and is enabled through decentralized technology. ShapeShift protects consumers without holding their assets and accessing their data.

This is our initial belief as we do not deal in any form of regulated fiat currency nor do we have custody of users' funds, there is no legal requirement for ShapeShift to collect users private information (“know your customer”, or KYC).

This changed in 2018. ShapeShift must KYC each client and run an advanced monitoring and reporting facility.

So for the past two and a half years we have been engaging in a practice that is not only ineffective, but that I and others consider patently immoral and dangerous : Collecting and monitoring the personal information of innocent individuals without authorization.

In the United States alone, approximately 20 million people experience identity theft each year due to the widespread transmission and storage of personally identifiable information (PII). The Justice Department estimates that these people lose more than $17 billion a year, more than robbery, burglary and auto theft combined.

But on the issue of KYC, there is something more important: legal and moral principles are at stake.

When a person is accused of a crime, it may be reasonable to lift their privacy to some degree in order to find out the truth about the crime.

However, KYC does not deprive some specific individuals, but all individuals, some of whom are innocent.

We should be able to do better. Unauthorized surveillance of all persons does not meet our standards.

The road to decentralization

ShapeShift is an established company; Hidden from anyone, we must abide by the law, even as we advocate reform.

From the beginning of ShapeShift, our business model has been simple: we trade crypto assets with users. We hold assets like bitcoin, ethereum, and when a user wishes to sell a digital asset, we receive an asset from them and send them another asset. We have been the counterparty in every transaction.

It is this mode of dealing with our customers - this particular business activity - that arguably puts us under the jurisdiction of bank secrecy laws and require us to provide KYC for users. It is this pattern that we are ending now.

In the future, ShapeShift will no longer transact with customers.
In contrast, ShapeShift enables clients to seamlessly transact directly with decentralized protocols.
As we will cease all regulated activity, we will no longer require KYC.
In order to protect and maintain the dignity of our customers, ShapeShift will integrate decentralized protocols wherever possible in the future.

By accepting the principles that Bitcoin brings to the world: decentralization, openness and immutability, we believe that this model A superior legal and moral process could be enacted.

Moreover, we believe the industry as a whole will move in this direction as it is more beneficial for customers. Open, decentralized finance is safer, more efficient, more transparent, and provides a better user experience. This is obvious to anyone who has used these systems, and they have witnessed the rate of innovation and improvement of these systems.

Why didn't ShapeShift do this in 2018? Decentralized exchange protocols were not feasible two or three years ago. However, they are available today. Especially the rise of decentralized exchanges this year is really exciting. ShapeShift is a commercial competitor to these sites as well as an ally in their mission, so instead of resisting these beautiful innovations, we embrace it to better serve our customers.

As our business has fundamentally changed, ShapeShift is no longer an exchange or intermediary of any kind. We are simply a software interface that allows people to easily hold and manage their digital assets (as always with their own private keys) and safely interact with decentralized financial technologies.

We are a technology company, not a financial institution.

Therefore, as we are no longer the counterparty to our clients, we can safely make these changes while fully complying with the law.

Several important points:

Currently, our integrated decentralized The Hua protocol only supports Ethereum and ERC20 assets. We expect to support decentralized exchanges of Bitcoin and several other mainstream coins in the first quarter of 2021.
Currently, customers who wish to trade non-ETH assets can still do so under our old model. This still requires KYC as we are still the counterparty to these transactions. Soon, the service will be fully retired.
The ShapeShift platform integrates with partners who are still middlemen, such as fiat onramps. Such partners still require KYC.
Customers who have provided us with KYC: We are required by law to keep your information for several years.
If you want to be evil: we are not your friends. There are many ways to monitor blockchain transactions that are much more effective than KYC. Not only will we continue to cooperate with authorities where required by law, we will also actively work with industry groups to monitor and root out malicious activity. We exist to protect the good, so we stand firm against evil.

Towards a more open and equal financial system.

Others in the crypto industry, and the thousands of independent developers working on decentralized technologies, we are very grateful for your continued innovation. We look forward to working together to promote open, self-sovereign finance that protects everyone, everywhere.

In the name of freedom,

Erik Voorhees