Digital wallet and P2P marketplace provider Paxful will be suspending operations effective immediately. “We are not sure if it will come back,” said CEO Ray Youssef in a blog post earlier this week. He cited increasing “regulatory challenges” as the main reason for the closure. However, the continuing fallout from the Celsius bankruptcy and an ongoing legal dispute between Paxful’s co-founders likely also played a part.
Paxful always aimed itself squarely at “underserved” markets both in wealthy countries and increasingly in the “Global South,” trading between parties with a wide range of other payment options and assets—most notably gift cards. It also operated a marketplace where users could list items for sale for payments in digital currency.
The company’s gift card market was famous in places where bank accounts are not universal, and Paxful had pushed into African markets like Nigeria. They were also used in the West, where certain people have been banned from payment providers or blocked from making payments to certain businesses/industries for various legal and political reasons.
Though regulations were increasing the pressure for digital currency businesses worldwide, they were affecting P2P markets “most heavily in the U.S.,” Youssef wrote. He later added in a Twitter Spaces group that U.S. regulators had been initially slow to move in the digital asset space but had “done a great job catching up” in recent years.
Youssef, originally from Egypt but raised in New York City, is a well-known commentator and social media figure in the digital asset community. He pledged not to withdraw funds from his personal wallet until all customers had done so first:
I’m not withdrawing my btc from @paxful until everyone else gets theirs out first 😓 pic.twitter.com/v0hq62SQaB
— Ray Youssef (@raypaxful) April 5, 2023
“We’re not in skyscrapers with “the suits”—we’re on the streets with the people,” the company’s website says.
Youssef added that, over time, regulations had forced about a quarter of his staff to concentrate on compliance issues. While one option would have been to block U.S. customers from using Paxful, this didn’t make any sense business-wise.
Paxful had also seen problems following the Celsius Network bankruptcy, where its users found their funds from the Celsius Earn program locked and ruled by a judge to belong to Celsius, not depositors. As a customer service gesture, Paxful promised to refund any amounts lost to Celsius Earn from its own reserves.
Since January 2023, the company has been in a legal dispute between current executives and original co-founder Artur Schabak. Though the complaint, filed in Delaware, was over an alleged breach of fiduciary duty, details of the dispute remain sealed and confidential.
In happier times, Schabak and Youssef were arrested in Miami in 2016 on drugs and weapons allegations following a wild party at an apartment in the city. Charges against them were dismissed later that year.
Digital asset businesses, particularly those sticking to old-school “crypto” principles of anarcho-capitalism and freedom through less-traceable payments, face ever-increasing heat from financial regulators. Though Paxful and similar services are not accused of doing anything illegal, the nature of P2P marketplaces that allow free exchange of value (again, such as combinations of digital assets and anonymous gift cards) make them among the first in line for scrutiny.
More and more, the blockchain/digital asset industry is growing to mirror the traditional financial industry, with all its restrictions and red flags for consumer protection and money laundering regulators. Exchanges are facing increasing pressure to monitor their users’ activities both within and outside the platforms they use, with demands they register identities behind external wallet addresses and pay closer attention to transfers of stablecoins like USDC and Tether.
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