Crypto exchanges resist call to block Russian users

Crypto exchanges are at the center of US efforts to carry out sanctions, but most are refusing calls to block Russian addresses en masse.

Why is this important: Ukrainian Vice Prime Minister Mykhailo Fedorov has called on major crypto exchanges to go beyond sanctions and block the addresses of all Russian users. But Binance, Coinbase, and Kraken say this goes against their core beliefs.

Driving the news: After Russia was barred from accessing foreign exchange reserves and some banks launched SWIFT, attention turned to crypto as a possible platform to evade sanctions.

  • Bloomberg reports that the National Security Council and the White House Treasury Department have asked major crypto exchanges to help cut off access to sanctioned entities and individuals.
  • Most said they would comply with sanctions and block addresses identified by the Treasury’s Office of Foreign Assets Control.

Yes, but: Some exchanges – including Binance, Coinbase and Kraken – have spoken out against the blanket ban on Russian-based addresses, saying it would unfairly harm innocent Russian nationals.

  • Kraken CEO Jesse Powell may have embraced the strongest techno-libertarian bent, Tweeter: “Bitcoin is the embodiment of libertarian values, which strongly privilege individualism and human rights.”
  • A notable exception is Ukrainian NFT and virtual goods startup DMarket, which according to Axios’ Stephen Totilo blocks all new user registrations from Russia and Belarus.

To note : There is a quirk in this ideological position coming from centralized crypto exchanges. If the US imposes broader sanctions across Russia, Binance, Coinbase, and Kraken are signaling they will comply.

  • As Kraken’s Powell notes: “The Russians should be aware that such a requirement could be imminent.”
  • It should also be noted that Russia is a big market for cryptocurrency.

Yet many believe the focus on crypto as a platform to evade sanctions is misguided.

  • Of course, Russia could try use crypto to mitigate the impact of sanctions, but markets likely lack sufficient liquidity to fully replace expensive war funding.
  • “At the macro level, crypto markets are not big enough to absorb the levels of currency that reduce sanctions,” Salman Banaei, co-head of public policy at blockchain data platform Chainalysis, told Axios.

Meanwhile, the volume of transactions required would make it easier to detect this activity, says Andrew Jacobson, an attorney in Seward & Kissel’s Economic Sanctions and Cross-Border Regulation team.

  • “I think it would be very obvious from the on-chain activity,” Jacobson said. Axios. “It’s actually much more difficult these days to launder funds on public ledgers than with fiat.”

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