Crypto AML Leaderboards: Quarterly Review

We've now wrapped our second quarterly review of Leaderboards, Hoptrail's composite indices measuring potential money laundering and terrorist financing risks across virtual asset service providers (VASPs).

Leaderboards profiles, scores, and ranks VASPs across 23 AML variables, specifically designed to showcase in real-time how well services are responding to and dealing with financial crime risks in the cryptocurrency sector.  You can find the Exchange and DEX Top 100 here; and you can find out more about our methodology here.

The findings for this quarter highlight a heavily evolving crypto landscape.  We've seen an array of venues marked as inactive or dormant; improved compliance processes and new licenses for some centralised exchanges; challenges and consolidation within the decentralised exchange (DEX) space; and a number of integrity issues across the ecosystem.

Blockchain.com retains the top position (in exchanges and overall) while Hong Kong-based Hex Trust, a custody service, sits in second.  Amber and Cumberland are the only pureplay crypto financial services firms to appear in the Top 10 - the former holding 11 licenses and registrations globally (a record bettered only in absolute terms by Binance).  

Here's how the overall Top 10 finished at the end of the quarter.

Exchange Closures

We saw a number of exchange closures in recent months, particularly among regional exchanges.  Closures have been driven primarily by liquidity issues, reduced investor appetite post-FTX, and regulatory changes in various jurisdictions.

This quarter, we marked a total of 11 centralised exchanges as inactive. Here they are, along with their final Leaderboards score:

• The Rock Trading - 72.71
• AAX - 76.87
• BTC-Exchange - 71.67
• BW - 54.07
• Exrates - 64.02
• Flyp.me - 64.34
• Folgory - 73.64
• Hoo - 72.45
• Polyx - 65.02
• Tidebit - 63.40
• Tokok - 69.81

Activity on DEXs has also been hit hard over the last three months, with substantially lower liquidity and trading volumes across many blockchains.  Hoptrail has categorised a total of 30 DEXs as either dormant or inactive. We deem DEXs dormant if 24 hour trading volume falls below $10,000. Recent dormant DEXs include:

• Mooniswap - 43.75
• PlasmaSwap - 39.58
• ViperSwap - 39.58
• SiennaSwap - 33.33

Ethereum continues to dominate the Top 10 DEXs on Leaderboards, with seven of the 10 active on the blockchain.  Cosmos Network has two: Osmosis and dYdX; and Vite has one with ViteX.  ShapeShift and 1inch remain the only venues with any form of AML policy and continue to top the DEX Leaderboard as a result.

Compliance and Licensing Changes

• In June 2023, Lithuania's Central Bank revoked the license held by UAB PayrNet, Wirex's card provider. Customers were informed that their debit cards might cease to function within the European Economic Area due to the revocation. This action resulted in a score decline for Wirex - from 84.06 to 80.00.

• On 26 June 2023, Bybit's Lithuanian subsidiary Onlychain Fintech Limited, obtained a license from Cyprus Securities and Exchange Commission, allowing it to operate as a cryptocurrency exchange and provide custody services in the jurisdiction.  Bybit's score moves up by 2.29 to 78.35.

• In July 2023, Blockchain.com made the decision to pause its custodial and exchange services for customers in Canada, citing evolving Canadian regulations as the primary reason for this adjustment. This resulted in a score decrease of 0.46.

• On 23 June 2023, Crypto.com announced it had obtained Virtual Asset Service Provider Registration from the Bank of Spain.  The registration now allows the exchange to operate as a VASP in the country.  Crypto.com's score increased by 0.39 to 89.63 on the news.

• On 13 June 2023, Bitstamp announced it secured registration from the Financial Conduct Authority to operate as an exchange and custody venue in the UK.  Hoptrail also confirmed the venue operates external transaction monitoring.  The venue moves up to 89.52, 11th in the Exchange category.

• Gate.io has improved its AML controls to include mandatory KYC on all customers.  Hoptrail has also added a recognised compliance officer to Gate.io's risk profile.  These changes have improved the venue's score by 7.3 to 81.83.

• In April, Bitfinex subsidiary Bitfinex Securities El Salvador S.A. de C.V. secured a license from El Salvador’s National Digital Asset Commission to operate as a fully regulated exchange in the country. This is Bitfinex's first license and moves the exchange score up 8.91 to 72.91.

Integrity Issues

• In February 2023, Italy-based The Rock Trading suspended operations and halted customer trading and withdrawals.  In April, a Milan court certified the judicial liquidation of The Rock Trading S.r.l., effectively declaring the exchange bankrupt.  The Court appointed an administrator and the Guardia di Finanza have since seized the keys to the exchange's assets and an investigation has been launched into allegations of fraud and embezzlement.  Users have until September to file an application claim on any assets still held on the platform.  

• In April 2023, user complaints emerged alleging exchange Bibox was blocking withdrawals. It has since emerged that the exchange continues to solicit new customers through social media channels.  The issue is yet to alter the platform's score of 76.61, although that will change with regulatory action.

• In mid-March 2023, decentralised exchange Orca announced it would be implementing restrictions for US traders on its platform. While the reason for this decision was not stated, it is widely suspected that regulatory concerns played a role. Orca has a Leaderboards score of 43.75.

• In May 2023, the New York State Department of Financial Services levied a $1.2 million fine against bitFlyer USA for lax cybersecurity procedures.  The fine was partly in response to an MEV bot attack on the exchange which led to the loss of $34 million.  BitFlyer's score declined by 3 points to 84.14.

• In June 2023, CoinEX agreed to pay a $1.7 million fine for failing to register as a securities and commodities broker-dealer by New York Attorney General Letitia James. CoinEX was ordered to refund investors and cease operations in New York as part of the settlement.  CoinEx's score fell by 3 points to 75.41.

• In June 2023, the US Federal Deposit Insurance Corp (FDIC) ordered OKCoin to retract misleading statements suggesting customers accounts are protected by the FDIC or face enforcement action for violating US banking law. The statements in question imply FDIC insurance coverage applies to all customer funds, including crypto assets, not only US dollar deposits.  This issue has not affected OKCoin's overall score.

• In May 2023 Poloniex agreed to pay a $7.59 million fee to settle Sanctions violation charges to the US Treasury Department's Office of Foreign Asset Control. Poloniex failed to maintain proper KYC practices between 2014 and 2019 resulting in the sanctions violations. The venue already has existing penalty points for a $10 million SEC fine for operating as an unregistered exchange, which was levied in August 2021.  This new violation does not incur additional point deductions, but it does extend the period that Poloniex will be under our penalty point regime by a further two years.

• In April 2023 US-based custody service Kingdom Trust was fined $1.5 million over inadequate AML controls leading to violations in the Bank Secrecy Act by the US Treasury Department's FinCEN.  The firm's score falls by 3 points to 73.03.

Solvency Transparency

Hoptrail's Solvency Transparency (ST) Index measures the financial health and transparency of exchange venues.  We have added two more platforms to the index, taking the total number of venues under assessment to 27 - the ecosystem's most extensive Proof-of-Assets review.  

• Gemini: Enters ST with a transparency score of 17%.  The exchange has not published detail on its onchain auditing, liabilities, or solvency ratios.  However, it has disclosed extensively on cold storage wallets, holding more than $4.5 billion, primarily in BTC and ETH.

• Kraken: Kraken (See below) has not voluntarily disclosed its wallets, but it does provide information on Merkle tree audits and provides user verification, giving it an overall ST score of 29%. Kraken holds $3.9 billion in wallets we have identified, $3.17 billion of which is in ETH.

Hoptrail’s quarterly reviews are just one part of our updating process, which includes real-time updates on major regulatory, legal, and reputational issues affecting the ecosystem, ongoing reviews on licenses and registrations, and rolling profiling work to add new constituents to our Leaderboards.

Our goal with these quarterly reviews is to ensure that users have access to the most relevant and up-to-date risk information on the ecosystem, empowering better and more rigorous decision-making.

Leaderboards is a dynamic composite risk index that encompasses compliance, regulatory, and reputational data, powered by near-real-time insights from across the ecosystem. Today, Leaderboards comprises profiles on more than 700 entities across 11 categories from exchanges and custody services, to crypto casinos, NFT marketplaces, and darknet marketplaces.

To delve deeper into the functionality and benefits of Hoptrail's Leaderboards, Profiles, and Explorer, we encourage you to reach out to us through our website.

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