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What's In Store for KuCoin After the Charges?
03/28/2024

What's In Store for KuCoin After the Charges?

03/28/2024
4,6

US authorities have accused the largest exchange KuCoin and its two executives of criminal conspiracy. The accusations caused a flurry of reactions both on the cryptocurrency market and in the community. Having learned from the bitter experience of the FTX collapse, users began to withdraw funds en masse: over 1 billion dollars were withdrawn from the exchange in just one day. What awaits KuCoin after the charges, and will it follow the footsteps of FTX? Should market participants worry?

The US Department of Justice has charged KuCoin and its two founders with criminal conspiracy. The charges indicate that the exchange intentionally operated without licenses, did not comply with the AML law, did not conduct KYC and did not prevent suspicious activity on the platform. In addition, due to lack of proper protocols, about $9 billion was laundered through the exchange. And all of this, according to the DOJ, was initially known to the founders, who intentionally did not prevent illegal transactions in order to establish themselves in the U.S. market. 

The market reaction was immediate. The native token of the exchange, KCS, fell by 15%, and users began to withdraw their funds en masse. By today, clients have withdrawn a total of more than $1 billion. The massive outflow of funds coincided with temporary technical problems of the platform: users complained that it took 10 hours to withdraw their funds, while others were unable to withdraw their assets at all. Having learned from the bitter experience of the FTX crash in 2022, they expected it to happen again with KuCoin. The charges turned out to be serious: if the court finds the owners guilty, they face imprisonment. 

But what will happen to the exchange next? Should users worry? 

Despite the charges, the founders of the exchange, Chun Gan and Ke Tang, have not been arrested. However, this situation may change. The KuCoin team, meanwhile, took to social media and assured its users that it continues to operate as normal. Also, in a separate tweet, it indicated that it is still listening to users, working and continuing to evolve. 

KuCoin CEO, Johnny Lyu, published a letter to the community, thanking them for their support over the past three days. "We will absolutely ensure the security of user assets as always and comply with regulations to fulfill our trust," he emphasized. 

In this letter, he announced the launch of airdrop of Bitcoin and KCS for a total of $10 million in compensation to the community. The details of the airdrop are not yet known, but will be released within three days. 

In separate tweets, Johnny Lyu also addressed the situation. He noted that the problem his exchange faced properties a developing industry. "Early-stage development often sees regulatory gaps, but as the industry matures, we move towards and embrace compliance and standardization," Lyu wrote. 

He added that the exchange's legal team is looking into the charges and assured that users' assets remain safe and all transactions, including deposits and withdrawals, are proceeding normally.

Meanwhile, some industry experts also rushed to reassure the cryptocurrency community. CryptoQuant CEO Ki Young Ju is confident that KuCoin is unlikely to suffer an FTX-like fate. He pointed out that despite the surge in withdrawals caused mainly by retail users, KuCoin's reserves are still robust. Moreover, the cryptocurrency exchange noted only a minor impact on its total reserve. 

Comparing KuCoin and FTX reserves, Ju noted other significant differences. While KuCoin's reserves remain stable and organic, FTX's reserves were close to zero at the time of its crisis. This suggests that FTX was once mixing users' assets with its own, while KuCoin was not. 

Still, despite the comforting predictions, the trial has only just begun. And as it unfolds, concerned parties in the cryptocurrency community should remain vigilant, as KuCoin's future is uncertain. The exchange's response to the allegations, marked by a willingness to be transparent and cooperate with authorities, may smooth the edges. But the current situation with KuCoin should serve as a warning to investors. 
 

 

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