Shapeshift CEO Erik Voorhees today announced that his company Shapeshift would be totally changing its business model, and shifting to become basically a DEX aggregator to facilitate swaps through DEX protocols, rather than its old model of being a CEX, and counterparty to all trades initiated by customers. Up until now, they operated as a centralized exchange, but one where users retained custody and conducted swaps. Shapeshift would hold a reserve of the assets listed, and when a customer made a swap, they would receive one token and send back to the customer the other.
This business model is being phased out, in favour of facilitating true trustless and decentralized swaps. Basically, Shapeshift becomes a software platform that acts as a front end for various DEX's. This means they will no longer be required to KYC their customers as they don't hold any customer funds, and are no longer a counterparty to the trades. In effect, Shapeshift is itself completely shifting it's own shape, from being a centralized swap provider to a DEX aggregator, and in the process repositioning itself for the future of DeFi.
Erik dislikes KYC.
In his announcement post, Erik Voorhees states the following:
And so, for the past two and a half years, we’ve been engaged in a practice that is not only ineffective, but that I and others find plainly unethical and dangerous: the warrantless collection and surveillance of personal, private information of innocent individuals.
It is obvious from the post that Eric has a philosophical objection to the processes and KYC procedures his firm has had to implement. Privacy has been infringed, in the name of Anti-money laundering and other "perceived criminal activities". The issue many in crypto have is the double standards at work here. If you go to the shop and buy a chocolate with cash, there is obviously no KYC involved. Why then, in theory, would a similar transaction using crypto, require KYC. The Crypto industry is demonized over black market activities, yet most of such activities still occur using fiat cash.
What about Bitcoin?
DEX's are great, and negate the need for KYC, but what about Bitcoin? most DEX's currently are Ethereum based, enabling ERC20 swaps and liquidity pools. How then will Shapeshift enable access to other assets, like Bitcoin (plus many other non-Ethereum assets). Without specifying how this will happen, in the announcement Eric addresses this as follows:
Today, the decentralized protocols we’ve integrated only support Ethereum and ERC20 assets. We expect native, non-wrapped Bitcoin and several other leading chains to be supported for decentralized trading in Q1 2021.
The answer to cross-chain swaps, the Shapeshift will facilitate, is Thorchain. He has not specifically mentioned it, but Thorchain is the way Shapeshift will facilitate native BTC swaps.
At this point I'll refer you to two previous posts of mine from November last year, in which I drew the conclusion that this integration was a possibility:
Can't help myself, and its not 100% confirmed yet, but I told you so. I am now 99.9% certain that Shapeshift will become one of the first front ends to Thorchain as soon as native BTC is rolled out.
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Thanks for reading, let me know in the comments you thoughts,
Cheers,
JK.
