Mar 1, 2022 - Economy

Crypto exchanges resist call to block Russian users

Crypto illo

Illustration: Sarah Grillo/Axios

Crypto exchanges are at the center of U.S. efforts to carry through with sanctions, but most are refusing calls to block Russian addresses en masse.

Why it matters: Ukrainian Vice Prime Minister Mykhailo Fedorov asked major crypto exchanges to go beyond sanctions and block the addresses of all Russian users. But Binance, Coinbase and Kraken say it goes against their core beliefs.

Driving the news: After Russia was barred from accessing foreign reserves and some banks kicked off SWIFT, attention has turned to crypto as a possible platform for evading sanctions.

  • Bloomberg reports that the White House’s National Security Council and Treasury Department have asked major crypto exchanges to help cut off access to sanctioned entities and individuals.
  • Most have said they will 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 come out against blanket bans on Russia-based addresses, saying it would unfairly hurt innocent Russian nationals.

  • Kraken CEO Jesse Powell perhaps took on the strongest techno-libertarian slant, tweeting: "Bitcoin is the embodiment of libertarian values, which strongly favor individualism and human rights."
  • One notable exception is Ukrainian NFT and virtual goods startup DMarket, which Axios' Stephen Totilo reports is blocking all new user registrations from Russia and Belarus.

Of note: There's an oddness to this ideological stance coming from centralized crypto exchanges. If the U.S. does impose broader sanctions across Russia, Binance, Coinbase and Kraken are signaling they will comply.

  • As Kraken's Powell notes: "Russians should be aware that such a requirement could be imminent."
  • It's also worth noting Russia is a large market for cryptocurrency.

Still, many believe the focus on crypto as a platform for sanctions evasion is misguided.

  • Sure, Russia could try to use crypto to blunt the impact of sanctions, but the markets probably lack enough liquidity to entirely replace financing for an expensive war.
  • “At the macro level, the crypto markets are not big enough to absorb sanctions-abating levels of currency," Salman Banaei, co-head of public policy at blockchain data platform Chainalysis tells Axios.

Meanwhile, the transaction volume necessary would make spotting that activity quite easy, says Andrew Jacobson, an attorney on Seward & Kissel's economic sanctions and cross-border regulatory team.

  • "I think it would be very obvious from on-chain activity," Jacobson tells Axios. "It's actually much harder in this day and age to launder funds on public ledgers than it is to do with fiat."

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