Shadow-debanking is a term that’s used when talking about unfortunate events, such as people’s bank accounts shutting down without any, well-known reason.
As the former CFTC commissioner Brian Quintez stated, banks aren’t obligated to provide an explanation as to why they shut down particular accounts owned by clients deemed “too risky”.
To be clear, on Sunday, January 23th, the CEO of Uniswap, one of the top decentralized exchanges, Hayden Adams wrote a Twitter post saying that his bank accounts were shut down by JP Morgan Chase without any explanation whatsoever.
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He believes that this incident is, in fact, personal by stating “I know many individuals and companies who have been similarly targeted simply for working in the crypto industry”, and “Thanks for making it personal”.
To be fair, there is a tendency of people in the crypto industry to get involved in unpleasant incidents with centralized banks, so, the suspicion is reasonable.
Brian Quentez, former Commodity Futures training Commissioner later replied to the tweet saying that it could potentially be:
shadow de-banking of crypto by the Federal Reserves and Office of the Comptroller of the Currency bank examiners.
He further talked about how the banks get directions from "the top", and if they are told that the client is “too risky”, the banks end the business in an instant.
However, no further evidence to support his claims was provided apart from the Wall Street Journal, Wyoming Senator Cynthia Lummis' opinion piece. The article focuses on how the federal reserve is responsible for ensuring a strong financial system for all Americans, yet fails to do so. As a result, crypto-related special purpose depository institutions, are barred from using the federal payment system.
Interestingly enough, CEO of Kraken Jesse Powell shared his tweet from 4 years ago where he mentioned that JP Morgan Chase has closed the Kraken payroll with a 5 days notice. As usual, no reason was provided.
The majority of people agree with the speculation that it could be the debanking scenario. However, there are others that say the banks have every right to do their tasks as they believe is fit, and that there isn’t any true right to a bank account.
The motives for the debanking aren’t particularly clear, but the customer’s risk levels are usually based on compliance with rules and regulations. Although, there also might be bank-like activities placed outside the traditional banking sector.
Speaking of regulations, to clear the way of clients’ trades, the broker-dealers have to register with the Financial Industry Regulatory Authority (FINRA). Nonetheless, if the funds are put into the user's wallets, and not the Uniswap DEX, cryptocurrencies are not categorized as securities.
You would see that Uniswap is the largest DEX, with a 24-hour trade volume of $2.74 billion, by taking a glance at CoinGecko.
To put things simply, DEX (decentralized exchange) is a peer-to-peer marketplace where every transaction is made directly between traders without handing custody of any information to the central authorities.
These trustless, secure transactions are pioneering new financial products and form a growing section of the digital asset industry. Besides, the user always remains in control.
