The U.S. Department of Justice has taken action, the founder is on the run, and the little "Binance" KuCoin has nowhere to go in the United States?

Following Binance, another cryptocurrency exchange has been subject to criminal prosecution by the United States.

And this exchange is not an unknown one, it is KuCoin, which was once called "Little Binance" in the industry.

On the evening of March 26, the U.S. Department of Justice disclosed on its official website that the cryptocurrency exchange KuCoin and its two founders, Chun Gan (alias "Michael") and Ke Tang (alias "Eric"), were charged with conspiracy to operate an unlicensed money transmission business, conspiracy to violate the Bank Secrecy Act and failure to maintain adequate anti-money laundering procedures to prevent KuCoin from being used for money laundering and financing terrorism, failure to maintain reasonable procedures to verify customer identities, and failure to submit any suspicious activity reports. The plaintiff is the U.S. Commodity Futures Trading Commission (CFTC).

The Department of Justice disclosed that KuCoin was suspected of committing a crime. Source: U.S. Department of Justice official website

Since its birth, KuCoin has been advancing with Binance qun +v 599695450 as its pace, and relying on the smooth product experience, it has successfully stood in the position of the world's fourth largest exchange. After Binance was sued, but the founder is absconding. How can this not be an alternative painting of the skin without painting the bones? In any case, this time KuCoin once again stood in the spotlight.

When talking about KuCoin, let’s first take a look at its development history.

In September 2017, KuCoin exchange was officially launched. People familiar with the history of the cryptocurrency industry probably know that it was just after China’s strict regulations against ICOs on September 4, 2017. At that time, even some people in the industry had doubts about the future of cryptocurrencies. In the exchange track, except for Binance, which had not yet been launched, there were many exchanges, including Huobi, OKEx, BitTorrent, BitEra, Yuanbao.com, etc.

KuCoin founder Michael used to work as a technical expert at Alibaba Ant Financial and was also an early investor in NEO and ETH. Therefore, KuCoin quickly received angel financing in the industry, but the 9.4 node is undoubtedly very unfavorable to the exchange. Perhaps because of this, KuCoin established the goal of going overseas very early and concentrated its customer base in Europe, Southeast Asia and America. The strategic decision proved to be correct. Three months after the launch, the number of KuCoin users exceeded 1 million, and the number of visits remained in the top five in the industry.

In 2018, the bear market came, and KuCoin was not surprisingly struggling, but it received 20 million A round financing from IDG and Matrix Partners in the same year, successfully surviving the cold winter. After replenishing its ammunition, the globalization plan was rapidly promoted. KuCoin began to establish local language communities in more than ten countries, and quickly occupied the minds of users in Europe, Latin America, Southeast Asia and other countries, and its popularity was comparable to the rapidly growing Binance.

In 2019, with the opening of Binance Launchpad, the market began to improve, and KuCoin became increasingly aggressive, launching almost all the popular spot + contract + OTC businesses at the time, and completely established a foothold in the cryptocurrency circle. According to the Tokeninsight report, in 2019, KuCoin was the exchange with the fastest growing trading volume. In terms of monthly visits, KuCoin ranked 6th in the world in Q1 and 7th in Q2.

Since then, KuCoin has continued to expand in size and involved in more and more countries, which once gave it the title of "Little Binance". According to data from the U.S. Department of Justice, KuCoin has now become one of the world's largest cryptocurrency trading platforms, with more than 30 million customers and daily cryptocurrency trading volume worth billions of dollars.

Even facing lawsuits, KuCoin still ranks at the top. Source: Coinmarketcap

Of course, these are all the glamorous parts, but from the perspective of compliance and regulation, KuCoin has a poor record.

First of all, the global development of exchanges must be based on compliance licenses, but KuCoin, which has this vision, obviously does not have one. Before the United States, it had been warned in many places that it was not legally registered. As early as June 2022, the Ontario Securities Commission of Canada took enforcement action against KuCoin, claiming that it had not complied with the securities laws of Ontario, Canada. In December 2022, the Dutch Central Bank also issued a warning to KuCoin, claiming that it had violated the Anti-Money Laundering and Terrorist Financing Act.

In March last year, the New York Attorney General also filed a lawsuit against KuCoin, claiming that KuCoin was not registered in the state, but users were still able to buy and sell cryptocurrencies on KuCoin in New York, which violated the Martin Act of New York State, and required KuCoin's parent company Mek Global Limited and PhoenixFin Pte. Ltd to permanently prohibit their illegal activities in New York State, including providing, selling and purchasing securities and commodities. The lawsuit was settled in December last year with KuCoin paying $22 million in compensation and withdrawing from the New York market.

But judging from the announcement of the US State Department, KuCoin is clearly pretending to obey. From the timeline, until at least July 2023, KuCoin did not require customers to provide any identity information and did not conduct KYC operations. After learning of the federal criminal investigation into its activities, KuCoin began to conduct KYC for new users, and even concealed the truth about American users, saying that it did not support American users. However, during the investigation, the Bureau of Investigation found that KuCoin had a large number of customers located in the United States. KuCoin also never registered with the CFTC as a futures commission merchant, and did not register with FinCEN as a funds transmission business until the end of 2023.

This data is not fabricated out of thin air. Previously, the media Wu said that it was proposed on the X platform in 2022. According to data analysis, KuCoin's US traffic reached 24%, which is the largest regional traffic of its exchange, and KuCoin is the only major offshore exchange that has not banned US IPs at all.

The data indicates that KuCoin was used as a vehicle to launder money, including proceeds from darknet markets and malware, ransomware, and fraud schemes, due to KuCoin’s willful failure to maintain required AML and KYC procedures. Since its inception in 2017, KuCoin has received more than $5 billion and sent more than $4 billion in suspicious and criminal proceeds.

It is quite interesting that KuCoin dared to operate without a license in the United States, Europe and other places, but it actually banned KYC in the mainland, which once made the Chinese people think that it was a compliant exchange. It can be said that it is selling dog meat under the guise of selling mutton.

Even if compliance is excluded, KuCoin's outrageous operations on the user side have never stopped.

During the bear market in 2022, multiple users revealed that KuCoin intentionally restricted withdrawals and that they had been maliciously stuck for a long time. At the same time, users discovered that KuCoin used the time difference to "arbitrage" users' UST. When users withdrew their coins to the chain, they lied about congestion, but in fact they were already conducting arbitrage operations, which ultimately caused users to suffer huge losses, but KuCoin obtained excess returns. Some even said that this operation had a profit of nearly 10 million in one night.

Many people revealed that KuCoin cannot withdraw funds. Source: Public information

What is even more outrageous is that a user revealed that Michael, the CEO of KuCoin, openly called orders in the official Telegram group and lured users into buying by falsely claiming activities. After investors were deceived and suffered losses, the account refuted the rumor and said that it was not Michael himself who operated it but an employee who operated it on his behalf, which also caused dissatisfaction among many users.

There are many similar behaviors, and you can find a lot of them on search engines. For example, Dock was questioned by users because its price fell below the issue price, and the price difference with other platforms was as high as more than 60%, but users were prohibited from withdrawing money.

KuCoin has negative reputation on search engines. Source: Public information

Due to various unscrupulous operations, in fact, as early as June last year, there was a rumor that more than 30 people from KuCoin's legal department and marketing department were arrested in Chengdu. Although it is difficult to tell whether this news is true or not, judging from the time, the US Department of Justice also started an investigation at that time. With regulatory pressure and bear market restrictions, KuCoin can't help but have the idea of ​​running away.

According to Wu, three independent sources confirmed that KuCoin considered stopping operations and selling the exchange in 2023. Relevant personnel from Binance and other exchanges received information about the sale, and many KuCoin businesses were accelerated to divest in 2023 to reduce risks. It is impossible to expect others to help in times of need, and the sale plan seems to have finally failed.

There is no threshold to join the community, no fees, no exchanges, no referral links

Back to the lawsuit, it is only a matter of time before the U.S. Department of Justice targets qun +v 599695450 for such operations. As for the final result, if Binance is used as a precedent, it will inevitably be fined heavily for violating the Bank Secrecy Act and conspiring to operate an unlicensed money transmission business. However, its size is obviously smaller than Binance, and whether it can pay is also a realistic problem. But the only good thing is that it has not been mentioned as a red line of suspected U.S. national security.

After the incident, although KuCoin quickly announced on the X platform that the funds were still safe, it was still run. As of noon on March 27, $1.197 billion had flowed out of the KuCoin exchange in the past 24 hours, including 274 million USDT and 19,886 ETH (about $72 million). According to Lookonchain monitoring, multiple whale addresses are transferring assets from KuCoin to other trading platforms, with the amount reaching 86 million USDT. As of now, KuCoin holds a total of $6.137 billion worth of crypto assets.

KuCoin official account responded, source: X platform

It is difficult to judge whether KuCoin will affect the current crypto bull market, but from the current situation, it is almost impossible. The market is not affected by the news. The Crypto Fear and Greed Index still shows "extreme greed", and Bitcoin is sitting at around $70,000. After the news of FTX's collapse, the price of Bitcoin fell by more than 20% in a week.

Ki Young Ju, founder and CEO of cryptocurrency analysis service CryptoQuant, also confirmed this view, saying that "the surge in BTC and ETH withdrawals is mainly driven by retail users, which has little impact on the overall reserves, and from an on-chain perspective, they do not seem to mix customer funds and have sufficient reserves to process user withdrawals."

KuCoin reserves, source: Ki Young Ju

However, unlike CZ in the Binance incident, both founders are now on the run, which will undoubtedly greatly strengthen the criminal penalty precedent. From the perspective of the sentence, each charge can be sentenced to up to five years in prison. In this regard, someone on the X platform began to recall the previous departure of Huobi’s Li Lin, sighing: "I didn’t expect that Li Lin’s courage to forge ahead is the real wisdom."

In any case, running wildly in the gray area will inevitably stagnate under the spotlight. For encryption, compliance has become the top priority, and the previous extensive and secretive operations have become a thing of the past. Future exchanges should also take this as a warning, otherwise, spending money will be a small matter, but losing freedom will also be a sad thing.

On the other hand, there is also rare good news this time. The U.S. Commodity Futures Trading Commission once again reiterated the commodity arguments of Bitcoin, Ethereum and Litecoin in the lawsuit, which also gave the Ethereum spot ETF a glimmer of hope.

Coincidentally, Republicans led by Patrick McHenry, Chairman of the U.S. House Financial Services Committee, and Glenn Thompson, Chairman of the House Agriculture Committee, also recently wrote to SEC Chairman Gary Gensler, asking him to further clarify the agency's position on Ethereum, namely whether it is a security.

If the Ethereum spot ETF is approved, the continuation of the bull market is self-evident, but it is unknown whether KuCoin will be able to get a share of the pie as one of the world's leading exchanges by then.