This week, Seychelles-based KuCoin expanded its trading pairs and ETF market. But can the exchange be trusted?
On Monday, one of the world’s largest cryptocurrency exchanges, KuCoin, Launched Six new trading pairs and an expanding ETF market. But so far this year, the exchange has gotten more attention for its courtroom drama.
Back on March 9, the New York Attorney General sued KuCoin for allowing investors to trade cryptocurrencies on its platform without registering with the state, in violation of the Martin Act. A law prohibiting buying, selling and offering securities and commodities through fraud or misrepresentation.
With Fear, Uncertainty, and Constant Doubt (FUD), potential customers should carefully consider KuCoin.
KuCoin is in hot water
According to the Office of the Attorney General (AOG), KuCoin failed to register as a securities and commodities broker and dealer, and falsely presented itself as an exchange. An important part of the issue is the definition of ETH as collateral. This case is one of the first for the regulator to do so.
Attorney General Letitia James claimed that KuCoin earned income for itself by selling the “KuCoin Earn” and falsely describing itself as an exchange. KuCoin Earn is the company’s service for passive income generation on financial products such as betting and liquidity mining.
The lawsuit seeks a permanent injunction to prevent KuCoin from operating in New York until it complies with the law. AOG is seeking a court order for KuCoin to implement geo-blocking based on IP addresses and GPS location to prevent access to its services in the jurisdiction.
KuCoin has faced this kind of scrutiny before. South Korean and Dutch regulators have accused the exchange of operating illegally without proper registration or licensing. a charge that has become a running topic.
For KCS holders, 2023 has been a good year so far. Like the rest of the cryptocurrency market, KCS has generally trended higher. With a marked backlash when the New York Attorney General announced her lawsuit on March 9.
However, the past year has been patchy for KuCoin itself. The exchange faced multiple bankruptcy rumors after the first cryptocurrency crash last year in May 2022. In an interview with BeInCrypto, Mete Ulmet Elmas, the company’s head of business development, acknowledged the rumors. “But all these rumors have already been proven wrong,” he said. “I would say rumors are cheap, we take them very seriously, but we are not afraid of them.”
Despite this, FUD does not appear to have altered the trajectory of the exchange. According to its own numbers, KuCoin added more than 13 million new users to its platform in 2022, a year-on-year increase of 102%. New user registrations increased significantly in Latin America, Africa, the Middle East and Europe as well.
Transaction volume in the KuCoin spot and futures markets exceeded $3.6 trillion in 2022. With daily trading volume rising to $23 billion in the futures market and $12 billion in the spot market in May 2022. The exchange also launched 210 new assets last year.
However, its market share is a speck compared to the big beasts in the industry. according to Coin classificationKuCoin is still the 7th largest exchange, with less than 1% market share. It is a solid mid-tier exchange with $785.57 million in 24-hour trading volume. Other mid-tier cryptocurrency exchanges such as Uniswap, ByBit, and Kraken are all in the $700 to $800 million category.
Can you trust KuCoin?
The short answer? probably. The exchange has survived waves of FUD and has come out stronger (at least out of the courts).
The exchange was one of the first to announce Proof of Reserves after the FTX-induced market crash. Cryptocurrency exchanges use Proof of Reserves to prove they have enough assets to cover withdrawals. An external auditor logs all customer balances and anonymizes the data using Merkle Tree encryption. Users can then compare the clients’ total balances with the exchange’s total assets.
However, it is notable that they did not publish any proof of reserves until they (like the rest of the industry) had to. This does not mean that KuCoin was cooking its books, but it does mean that it chose the path of transparency at the last minute. Skeptical traders should not forget this fact.
Kaiko, web3 data platform, has a less-than-flattering ranking of the exchange, too. Despite being the 7th largest company, it is only 29th out of 37 in the exchange ranking – earning a B overall. Kaiko uses a variety of metrics to score each exchange.
It is the lowest performing ‘governance’ metric, ranking below all but one of its major competitors: OKX. The governance score measures the exchange’s policy in terms of KYC/AML, market surveillance, country risk, financial regulation, insurance coverage, and other sub-criteria. It includes legal entity assessment, country risk, trading policies, market surveillance, insurance, financial regulation, reserve proof, and regulatory sanction penalty. The score aims to assess the exchange’s compliance and regulatory stance.
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