On March 17, OKX officially announced that it had decided to temporarily suspend DEX aggregator services after consultation with regulators. As a result, related limit orders and cross-chain orders will be automatically revoked. OKX said that the specific recovery time will depend on the progress of the upgrade. During this period, users can still trade by jumping to third-party protocols, and other services of the OKX Web3 wallet will not be affected.
According to community feedback, some trading robots connected to the OKX DEX API experienced occasional failures in EVM series (BSC, ETH) transactions.
At the same time, Binance Wallet announced that all transactions in Binance Web3 wallet will enjoy zero transaction fees in the next 6 months. Obviously, a silent war on the on-chain products of trading platforms has begun.
European crypto regulatory climate tightens
The suspension of OKX DEX services comes at a time when its Web3 services are under scrutiny by EU regulators.
On March 11, Bloomberg reported that European cryptocurrency regulators are reviewing the use of a service provided by the crypto exchange OKX, which hackers used to launder $1.5 billion stolen from the trading platform Bybit, according to people familiar with the matter. These people requested anonymity because the review process is confidential. They said that national regulators from the 27 EU member states discussed the issue at a meeting hosted by the European Securities and Markets Authoritys Standing Committee on Digital Finance on March 6.
OKX responded to Bloomberg, saying the report was misleading. It provided self-custodial wallet services/exchange functions as an aggregator to create efficiency for users, and emphasized that its Web3 wallet services were no different from those provided by other industry players. OKX also revealed that after Bybit was hacked, OKX took measures such as freezing the relevant funds entering CEX and developing new features to prevent hacker addresses from using its DEX or wallet services.
OKX insisted that it was not under investigation and that the incident was merely a case of Bybit’s lack of security knowledge. In today’s OKX announcement on the suspension of DEX services, this possibility was stated as “due to service upgrades.”
The regulatory pressure facing OKX is not groundless. Globally, the cryptocurrency industry is facing an increasingly stringent regulatory environment. François Villeroy, governor of the Bank of France, publicly stated on March 17 that the United States’ embrace of cryptocurrencies could trigger another financial crisis, noting that “financial crises often start in the United States and then spread to other parts of the world. By encouraging cryptocurrencies and non-bank finance, the U.S. government is laying the seeds for future turmoil.”
On the same day, ECB board member Villeroy said in an interview with Frances Sunday Tribune over the weekend that by encouraging the development of crypto assets and non-bank finance, the US government is sowing the seeds of future turmoil.
It can be said that crypto regulation in Europe has always been under high pressure. Currently, only OKX and Crypto.com have obtained the EUs Markets in Crypto-Assets Regulation (MiCA) license, both obtained in Malta. Many exchanges including Binance, Bybit, and Kraken are still in the process of applying.
The founder of Tornado Cash was arrested, the head of Thorchain was fired, and the struggle between DeFi and regulation has never stopped
OKX is being investigated for transferring funds via Bybit hackers, which is similar to the situation where Tornado Cash and Thorchain faced regulatory pressure for transferring funds and laundering money via hackers.
In April 2023, the U.S. Treasury Department released an assessment report on illegal financial activities in DeFi, which revealed the potential risks in DeFi services and deeply analyzed the criminal activities of illegal actors using these services. Three months later, four U.S. senators proposed the Crypto Asset National Security Enhancement and Enforcement Act, which also aims to strengthen supervision of KYC, AML and DeFi.
The Crypto-Asset National Security Enhancement and Enforcement Act provides a new framework for regulating DeFi, requiring that DeFi be regulated like other cryptocurrency institutions, requiring that anyone who can control the project must be responsible for the project. The bill may mention that if no specific person can control the DeFi service, then any investor who invests more than $250,000 in the project should be responsible for the project.
In August 2023, the U.S. Treasury Departments Office of Foreign Assets Control imposed sanctions on Roman Semenov, one of the three founders of the Tornado Cash virtual currency mixer, on the grounds that he provided substantial support to the state-level hacker group Lazarus Group to cover up hundreds of millions of dollars in virtual currency theft. In May 2024, a Dutch judge found Alexey Pertsev guilty of money laundering and sentenced Pertsev to 64 months in prison.
The Bybit theft affected not only OKX DEX, but also another DeFi protocol THORChain. The main way for Bybit hackers to launder money was to convert ETH into BTC through THORChain, which brought huge transaction volume and handling fees to THORChain. On February 27, according to Embers monitoring, the Bybit hackers money laundering had brought THORChain $2.91 billion in transaction volume and $3 million in handling fee income in a short period of time.
On February 28, THORChains chief developer Pluto announced his resignation. It is hard to say that this has nothing to do with hackers using THORChain to transfer funds. This is also related to the DeFi protocol advocated by the Crypto Asset National Security Enhancement and Enforcement Act, which requires anyone who can control the project to be responsible for the project.
These cases about agreements and regulation bring us back to the classic question - if a person uses a kitchen knife to chop someone else, is the person who sells the knife guilty?
Previously, Wang Xin, the founder of Qvod, who was arrested for being a platform for spreading obscene content, was a guest at BlockBeats Space. He said that when a product receives more and more attention, the social responsibility of the developer becomes greater and greater. He believes that developers should actively embrace supervision and make some preventive mechanisms in advance. The kitchen knife theory and matchstick theory are more like defending developers, and they put forward a relatively more neutral car theory.
The automobile industry has developed for many years. The earliest users were limited to racing drivers and enthusiasts. At that time, driving was about speed. But today, cars have entered thousands of households. In addition to increasing the speed of cars, car companies have also done a lot of other work. For example, safety, cars cannot run too fast. From the perspective of engine performance, the speed of a car can reach more than 300 kilometers per hour, but in reality many cars cannot do so. Car companies make these restrictions to avoid accidents caused by speeding. Automobile Theory is closer to reality. Developers need to do some design in advance and embrace supervision to solve more practical problems.
Perhaps, from this perspective, we can understand OKXs decision to suspend DEX business and upgrade services.
What does the community think?
As the wallet with the largest number of active users and the most important entrance on the chain, the suspension of OKX DEX services has sparked widespread discussion in the community.
Some people believe that the license is not a one-time solution, and that they still need to continue to comply with the licensing regulations and face huge compliance pressure. It may be possible to spin off the Web3 business under the Mica license in the future. At the same time, some crypto experts pointed out that obtaining a license can only mean two certain things: 1. You are willing to accept supervision; 2. Your compliance costs have increased significantly.
According to insiders, all major trading platforms are currently making rectifications to regulatory issues, mainly including splitting the trading platforms wallet into an independent APP; the wallet APP no longer has its own DEX and cross-chain functions, and no longer provides official financial management such as CeDeFi; the issuing and operating entities are completely isolated from the trading platform.
After Trump took office, his pro-crypto government successively withdrew the SECs previous complaints against crypto companies such as Coinbase, Uniswap, and Ripple, and the US crypto regulatory environment once became a stimulant for market sentiment. Therefore, the community is optimistic that the EUs regulatory actions against OKX will also be relaxed.
The community also speculates that the most likely scenario is that OKX DEX and CEX businesses will be split, and that they will follow the Binance Web3 wallet in conducting user KYC, which is a countermeasure in the pursuit of compliance.
