KuCoin market share halves alongside $1.2 billion in outflows after DOJ indictment and CFTC charges

Following charges by the US Department of Justice and the Commodity Futures Trading Commission last week, the cryptocurrency exchange KuCoin K.C.S.

has seen its market share by daily trading volume halve, according to a report from the blockchain analysis and research firm Kaiko.

Daily volume fell about 75%, from $2 billion (before back-to-back charges on March 26) to $520 million.

When the announcements were made, this caused an increase in the number of users wanting to withdraw their tokens from the platform, resulting in slower withdrawal times. KuCoin announced an investment of $8.95 million air launch program for users who experienced this withdrawal congestion, as well as a larger planned airdrop for users who did not withdraw any assets during the period. However, the incentive was not enough to prevent KuCoin's market share from being more than halved, from 6.5% to 3%, according to Kaiko data.

KuCoin trading volume and market share. Image: the dock.

Onchain data suggests that KuCoin users have been moving funds to rival crypto exchanges, including Coinbase, Binance and OKX, which they perceive as safer options, Kaiko analysts argued, as well as to their own self-custody wallets. Some of the outflows can also be attributed to market makers leaving the exchange, analysts noted.

KuCoin sees over $1.2 billion in outflows

Outflows from wallets with the KuCoin label amounted to $600 million Only on March 26, significantly outperforming inflows and composed primarily of ether and USDT. However, analysts said it was important to note that the flows only included on-chain transactions between Kucoin and other exchanges or wallets and not those made between Kucoin addresses.

KuCoin wallet flows. Image: the dock.

Data from blockchain analytics platform Nansen shows daily net outflows since March 26 are now total $1.21 billion.

KuCoin daily net flow. Image: Nansen.

DOJ and CFTC Charges Against KuCoin

Last week, the US Department of Justice alleged KuCoin and two of its founders, Chun Gan and Ke Tang, had violated anti-money laundering laws, alleging that they allowed the platform to be used to launder more than $9 billion. The indictment claimed that KuCoin deliberately avoided US AML and KYC regulations by "falsely representing that it had no US customers when, in fact, KuCoin had a substantial US customer base."

For example, from August 2022 to November 2023, around 197 KuCoin deposit addresses directly or indirectly received $3.2 million in cryptocurrency from the virtual currency mixer Tornado Cash, which was placed in a sanctions list, the Justice Department said at the time.

“KuCoin is performing well and our users' assets are absolutely safe,” the exchange responded. "We are aware of the related reports and are currently investigating the details through our lawyers. KuCoin respects the laws and regulations of various countries and strictly adheres to compliance standards."

The Commodity Futures Trading Commission also filed a parallel civil lawsuit on March 26 against KuCoin, alleging that it illegally operated a digital asset derivatives exchange. The CFTC seeks disgorgement, civil monetary penalties, permanent trading and registration bans, as well as a permanent injunction against future violations.

'There is no direct interaction' between KuCoin and Tornado Cash

Despite the Department of Justice's claims, Kaiko found no direct interaction between KuCoin and Tornado Cash on the Ethereum blockchain.

However, the funds stolen from the exchange after a $280 million hack in 2020 they were later “privatized” using the crypto mixer, which involves a significant amount of ether, the analysts noted.

The ether stolen from KuCoin was transferred to Tornado Cash. Image: the dock.

"Although Kucoin managed to keep its market share relatively stable during last year's bear market, the recent loads and exits may pose a significant challenge to the exchange's future growth," the analysts added.

Disclaimer: The Block is an independent media outlet providing news, investigations and data. As of November 2023, Foresight Ventures is the majority investor in The Block. Foresight Ventures invests in other companies in the crypto space. Bitget, the crypto exchange, is an anchor LP for Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information about the crypto industry. Here are our current financial disclosures.

© 2023 The Block. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.

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