Principled move by ShapeShift

    21 Jul 2021

    The popular cryptocurrency exchanger ShapeShift is moving to a decentralized mode of operation. From now on, it will be a DAO controlled by FOX token holders.

    Switzerland-based multinational company ShapeShift is preparing to close down as a registered legal entity. According to its founder Erik Voorhees, ShapeShift currently employs 65 people, but in a few months it will have no employees, no bank accounts and no CEO. The company, having left the Swiss (and indeed any other) jurisdiction, will turn into a decentralized autonomous organization (DAO).

    To do this, ShapeShift will distribute 340 million FOX tokens for free to all former users of the exchange, of which there are about 900,000, as well as to the owners of 120,000 addresses interacting with major DeFi protocols.

    Here are Erik’s own comments on this move: “This is definitely radical. A year ago I thought that such an initiative is something from the fantasy realm. But now I know how this tool is created and I have seen communities built around a token rather than a capital structure. The fact that ShapeShift actually closes its legal entity sets us apart from the rest.”.

    To those unfamiliar with the subject, ShapeShift was founded by Erik Voorhees on July 1, 2014 in Switzerland. In March 2015, it received $ 525,000 in investments from such iconic crypto world celebrities as Roger Ver and Barry Silbert.

    Created in part as a response to the MtGox disaster, ShapeShift started out as a simple tool for people to safely and easily convert one digital asset to another. The company was confident that since it did not process any form of regulated fiat currency and did not accept user funds into custody, ShapeShift was not legally obligated to collect KYC information. But in 2018, the market operating rules changed. Now ShapeShift had to apply KYC guidelines to every user.

    Erik Voorhees was really disappointed by this.

    “KYC does not end the confidentiality of individuals accused of wrongdoing, but the confidentiality of all individuals, none of whom has been accused of anything, – claimed ShapeShift founder. – Unjustified universal surveillance cannot be our standard. By embracing the very principles that Bitcoin brought to the world: decentralization, openness and immutability, we believe that a better legal and ethical course can be charted.”

    The transition to the DAO model is based on the use of the FOX token, which is now worth about $ 0.92 after reaching an all-time high of $ 1.65 in April. The total supply of tokens is limited to 1,000,001,337 FOX, not accounting for inflation. Of these, 34% are distributed among the project community and other cryptocurrency communities, 32% – among ShapeShift employees, 24% –  to ShapeShift DAO, 7.5% – to a fund that will manage everything that cannot be decentralized immediately, and 1.3% – for the company to use in the process of shutting down.

    About 10 million FOX tokens are already in circulation. The free distribution of tokens will primariily affect those who have used ShapeShift at least once. The exchange will also be doing a small giveaway to users of various DeFi protocols, including Gitcoin, Uniswap, Yearn, and more. In addition, the giveaway will involve Thorchain users. Voorhees explained that using ShapeShift doesn’t require FOX tokens, but FOX holders can generate income. They will be able to participate in liquidity mining – ShapeShift will reward users who become liquidity providers to key Uniswap pools that help increase the depth of liquidity for the FOX token.

    After the ShapeShift exchange announced its transition to a decentralized organization, the FOX token grew by 113%, with the price rising by 288% at one point. The popularity of the token was also increased following the launch of the FOX-ETH liquidity pool on Uniswap.

    Eric Voorhees hopes to “get rid of bureaucracy” by transferring ShapeShift status from that of an official company to DAO, improving relations with users and developers along the way.

    “The most significant part of the company is the people. I hope this will improve our relationships. For me, not much changes – I’m going to stay a part of ShapeShift and be one of its many leaders”, – says Voorhees.

    As you may recall, at the beginning of the year ShapeShift announced integration with DeFi applications Uniswap, Balancer, Curve, Bancor, Kyber, 0x and mStable. This allowed ShapeShift customers to avoid the KYC procedure – in fact, the company itself presented this as a great advantage. Its representatives stated that decentralized insurance protocols could eliminate the risks faced by DeFi projects.

    Apparently, it was then that Erik Voorhees made the final decision to turn ShapeShift into a DAO. “Centralized exchanges are like black boxes: they cannot be verified from the outside. You must trust the exchange operators and any other party that can access this data, and this trust is often violated, – said Voorhees on January 6. – Our goal is to protect people and ensure transparency of the financial system. That means open source finance.”

    So what can be gaged from this whole story? We see divisions in the crypto world. Large crypto exchanges and other projects with a lot of users expect to get into the good graces of the authorities by trying to comply with AML standards and introducing various KYC procedures. This way they get the chance to continue operating, but they lose that spirit of independence, freedom and anonymity, which gave birth to cryptocurrencies in the first place.

    ShapeShift has chosen a different path: uncomfortable existence in the world of financial regulators as cost for protecting the interests and anonymity of its users. Only time will tell whether Erik Voorhees was right to completely leave all jurisdictions in favor of the Extra Jus status. It’s hard, but, on the other hand, the behavior of large platforms like EXMO, reaching an agreement with financial regulators, reminds you of the desire of democratic countries before World War II to “pacify” Nazi Germany by making concessions to it.

    In the end, it still couldn’t help avoid the war. Same here: states will still try to destroy crypto platforms as soon as they see them as real competitors for their fiat financial systems. What will it look like? Well, we can see the example of Binance, the largest crypto exchange in terms of daily trading volume, already facing a rapid series of bans on its activities in various jurisdictions.

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