What will happen in the future for OKX DEX that is being hit?

Author: shu , BlockBeats

On March 17, OKX officially issued an announcement stating that it had voluntarily decided to temporarily suspend DEX aggregator service after consultation with regulators. Affected by this, the relevant limit orders and cross-chain orders will be automatically cancelled. OKX indicates that the specific recovery time will depend on the upgrade progress. During this period, users can still make transactions by jumping to a third-party agreement, and other services of OKX Web3 wallet will not be affected.

According to community feedback, some trading robots connected to the OKX DEX API have experienced occasional failures in the EVM series (BSC, ETH) transactions.

Meanwhile, Binance Wallet announced that all transactions in Binance Web3 wallet will enjoy zero transaction fees for the next six months. It is obvious that a silent war on products on the trading platform has begun.

European crypto-regulatory atmosphere tightens

The OKX DEX service is suspended as its Web3 service is under scrutiny by EU regulators.

On March 11, people familiar with the matter said that European cryptocurrency regulators are reviewing the use of a service provided by crypto exchange OKX, which hackers used to clean up $1.5 billion of stolen money stolen from trading platform Bybit, according to Bloomberg. These people requested anonymity because the deliberation process was confidential. They said the issue was discussed at a meeting hosted by the European Securities and Markets Agency's Digital Finance Standing Committee on March 6, they said.

Immediately afterward, OKX responded to Bloomberg's claim that the report was misleading, and it provided self-hosted wallet service/exchange as an aggregator, aiming to create efficiency for users, and stressed that its Web3 wallet service is no different from those provided by other industry participants. OKX also revealed that after Bybit was hacked, OKX took measures such as freezing relevant funds into CEX and developing new features to prevent hacker addresses from using their DEX or wallet services.

OKX insists that it is not investigated, and the incident is only a case of Bybit's lack of security knowledge, and in today's OKX's DEX service suspension announcement, this possibility was expressed as "due to service upgrades."

The regulatory pressures facing OKX are not groundless. Globally, the cryptocurrency industry is facing an increasingly strict regulatory environment. French Central Bank Governor François Villeroy publicly stated on March 17 that the U.S. embrace of cryptocurrencies could trigger another financial crisis, noting that “financial crisis often begins in the United States and then spreads to the rest of the world. By encouraging cryptocurrencies and non-bank finance, the U.S. government is laying the root of future turmoil.”

On the same day, ECB Management Committee Villeroy said in an interview with the French Sunday Tribune over the weekend that "by encouraging the development of crypto assets and non-bank finance, the U.S. government is sowing the seeds of future turmoil."

It can be said that crypto supervision in Europe has always been in a high-pressure atmosphere. Currently, only two exchanges, OKX and Crypto.com, have obtained EU Crypto Asset Market Regulation (MiCA) licenses, both obtained in Malta. Many exchanges including Binance, Bybit, and Kraken are still applying.

Tornado Cash founder arrested, Thorchain chief resigned, DeFi and

regulation struggle never cease

OKX is investigated for the transfer of funds by Bybit hackers, which is exactly the same as the situation where Tornado Cash, Thorchain and hackers transfer funds and money laundering are facing regulatory pressure.

In April 2023, the U.S. Treasury Department released an assessment report on illegal financial activities on DeFi, which reveals potential risks in DeFi services and deeply analyzes illegal actors’ use of these services for criminal activities. Three months later, four U.S. senators proposed the Crypto Assets National Security Enhancement and Enforcement Act, which also aims to strengthen supervision of the KYC, AML and DeFi fields.

The Crypto Assets National Security Enhancement and Enforcement Act provides a new framework for regulating DeFi, which requires that regulating DeFi should be held accountable to any "person" who can control the project, just like regulating other cryptocurrencies. The bill may mention that if no specific person can control the DeFi service, any investor who invests in the project for more than $250,000 should be responsible for the project.

In August 2023, the U.S. Treasury Department’s Office of Foreign Assets Control sanctions on Roman Semenov, one of the three founders of the Tornado Cash virtual currency mixer, citing substantial support for the national hacker group Lazarus Group to cover up hundreds of millions of dollars in virtual currency theft. In May 2024, a Dutch judge ruled that Alexey Pertsev was guilty of money laundering and sentenced Pertsev to 64 months in prison.

Theft of Bybit not only affects OKX DEX, but also another DeFi protocol, THORChain. The main method of Bybit hackers to launder money is to exchange ETH into BTC through THORChain, which has brought huge transaction volume and handling fees to THORChain. On February 27, according to Ember Monitoring, Bybit hackers' money laundering has brought THORChain $2.91 billion in transaction volume and $3 million in handling fee revenue in a short period of time.

On February 28, THORChain chief developer Pluto announced his resignation, and it is hard to say that this has nothing to do with hackers using THORChain to transfer funds. This is also in line with the DeFi agreement claimed by the Crypto Assets National Security Enhancement and Enforcement Act that requires any "person" who can control the project to be responsible for the project.

These cases of agreements and supervision bring us back to that classic topic

• if a person uses a kitchen knife to chop people, is the person who sells the kitchen knife guilty?

Previously, Wang Xin, the founder of Kuaibo, who was arrested for becoming a platform for spreading obscene content, was a guest at BlockBeats Space. He said that when a product receives more and more attention, developers' social responsibility will become greater and greater. He believes that developers should take the initiative to embrace supervision and make some prevention mechanisms in advance. "Cookie Knife Theory" and "Match Theory" are more like defending developers, proposing a relatively neutral "automatic theory".

The automobile industry has been developing for many years, with the earliest users limited to racers and enthusiasts, and at that time, driving was comparable to 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, the car cannot run too fast. From the perspective of engine performance, a car can reach more than 300 kilometers per hour, but in reality, many cars cannot do it. Car companies have made these restrictions to avoid accidents in racing. "Auto Theory" is closer to reality. Developers need to do some design in advance and embrace supervision to solve more realistic problems.

Perhaps, from this perspective, we can understand OKX's choice to suspend DEX business and perform service upgrades.

What do you think of the community?

As the most important wallet portal with the largest number of active users on the chain, the suspension of OKX DEX has sparked widespread discussion in the community.

Some people believe that licenses are not a one-time solution, and they still face huge compliance pressures to continue to comply with license regulations. Perhaps in the future, there may be a possibility of divesting Web3 business under Mica license. At the same time, regarding licenses, some cryptographers also pointed out that obtaining a license can only show two certain things: 1. You are willing to accept supervision; 2. Your compliance costs have increased significantly.

According to people familiar with the matter, major trading platforms are currently rectifying regulatory issues, mainly including splitting the wallets of the trading platform into independent APPs; wallet APPs no longer have DEX and cross-chain functions, and no longer provide official financial management such as CeDeFi; and issuing and operating entities are completely isolated from the trading platform.

After Trump took office, his pro-crypto administration successively revoked previous SEC complaints against crypto companies such as Coinbase, Uniswap, and Ripple. The US crypto regulatory environment has once become a stimulant of market sentiment. Therefore, the community is optimistic that the EU's regulatory action against OKX will also be relaxed.

And the community speculated that the most likely situation is that OKX DEX and CEX business are split and followed the Binance Web3 wallet to perform user KYC, which is a countermeasure in the pursuit of compliance.