Cryptocurrency exchange Shapeshift is launching a new mandatory membership program that will now require users to provide some personal information. According to the company’s blog, they’re branding it as a loyalty program, which offers a series of benefits, including “higher trading limits, rewards on trading volume, better pricing, private market and trade data, and early access to new coins, products and services”.
The change from being an ‘exchange without accounts’ to requiring personal information was made for 3 primary reasons:
1) The requests of many of our users to have account-related features: A record of transaction history, saved/whitelisted addresses, and email notifications, for example.
2) Increasing interest in the broad phenomenon of tokenization – the ability to “financialize” and bring liquidity to various aspects of business/customer relationships. Specifically, the ability to build tokenized loyalty programs, in which the engagement between a business and its customers can itself become an asset.
3) The practice of requiring customers to hand over personal private information is one we’ve struggled with since inception. To the extent that digital asset technology remains a legal grey area, we need to be prudent and thoughtful in our approach as we navigate the regulatory environment.
In addition, Shapeshift is providing users with a FOX token, which is used to grant access to these higher levels of Membership.
Cryptocurrency exchanges are under more regulatory pressure than ever, with governments requiring that they conduct KYC and AML procedures to prevent fraud. As a centralized exchange, Shapeshift lacks the ability to operate without a license or some form of cooperation from local governments. This further adds pressure on their business to start collecting personal information from users in order to remain operational. The tone of Shapeshift CEO, Erik Voorhees, response to the personal information requirement clearly indicates that the company’s hand was forced into making this decision:
“Yes, that last detail sucks. We would prefer if the collection of personal information was not a mandatory element. We still firmly believe that individuals, regardless of their race, religion, or nationality, deserve the right to financial privacy, just as they deserve the right to privacy in their thoughts, in their relationships, and in their communications”.
The new membership program and requirements for personal information may very well enhance Shapeshift’s service. However, this update only adds to the growing concern of those who see the inevitable transformation of centralized exchanges into the very same traditional financial institutions that cryptocurrencies were made to disrupt. KYC and AML processes are only a small step, yet they can lead to problems down the road for users who wish to freely exchange funds without censorship or having their details shared with the authorities.
As the topic of institutional investors and Bitcoin ETFs continue to gain more relevance, we will undoubtedly start to see more centralized exchanges conform to the same demands that traditional financial institutions comply with in order to gain access to larger customers. The retail market is credited with helping exchanges like Coinbase, Shapeshift and Gemini grow to dominate the crypto space. Yet, these exchanges now recognize that larger investors with deeper pockets must be included in order to achieve the next phase of growth.
Ultimately, as long as Shapeshift has institutional adoption as their set target, we should expect a lot more breaches of privacy and disclosure of personal information for the sake of “compliance”.
Besides Shapeshift, there are only few centralized well-known exchanges that, as of writing these words, do not require passing any KYC process. The most known out of them is the margin trading exchange Bitmex.