dYdX

dYdX ends contentious promo claiming ‘overwhelming demand’

The prompt cancellation comes after strong community pushback relating to the requirement of a facial recognition scan in order to receive the deposit bonus.

Decentralized crypto derivatives exchange dYdX says it has ended its short-lived and contentious $25 first deposit bonus promo amid a wave of backlash over its facial recognition requirements for new users.

The exchange, however, simply cited “overwhelming demand” as the reason for its short-lived promotional campaign, which ended on Thursday “effective immediately.”

The promo in question launched on Wednesday and it offered new users a $25 bonus if they deposited $500 or more into the platform.

The only catch was that they had to agree to do a “liveness check” via webcam to verify their identity, which didn’t go down well with certain sections of the community.

Around 24 hours later, dYdX tweeted that it would end the campaign “due to extremely overwhelming demand” after purportedly onboarding thousands of new users.

The team behind the DEX didn’t outline how long the promo campaign would last during the initial announcement but stated that it “truly underestimated the amount of interest the campaign garnered.”

Related: Are non-KYC crypto exchanges as safe as their KYC-compliant peers?

dYdX, notably, made no mention of the community pushback in the most recent tweet but doubled down on its use of the facial recognition software in an earlier post, stating that it was only used to make sure users weren’t doubling up on accounts to claim the bonus.

Some in the community aren’t buying it, with some believing the cancellation was largely a result of the contention, while others have expressed concerns with the platform using such tools in the first place.

Yearn.finance contributor Adam Cochran tweeted to his 153,100 followers that despite being a major advocate for dYdX in the past, he will be moving off of the platform and selling his DYDX tokens until he sees “meaningful changes there:”

“dYdX doubles down on claiming that this is ok by saying it’s just if you want the reward program. In their eyes your data privacy is a commodity and an acceptable risk if they get growth.”

“I’m hopeful for a decentralized perps market but I am worried about this behavior and think a company culture that prioritizes growth over users is dangerous,” he added.

Crypto users push back against dYdX promotion requiring face scan

“No matter the cause, this is an absolutely horrible idea and you should walk this back immediately,” said Adam Cochran, a general partner at Cinneamhain Ventures.

Many users on social media have been lambasting decentralized exchange dYdX over the identification verification process to receive a sign up and deposit bonus of $25.

In a Wednesday blog post, dYdX announced that new users who deposited 500 USD Coin (USDC) for their first transactions could receive a bonus promotion of 25 USDC, provided they were willing to do a “liveness check.” According to the exchange, the verification process accessed a user’s webcam and “compares if your image has been used with another account on dYdX.”

Though the giveaway was completely voluntary, many on Twitter implied the checks were tantamount to invasions of privacy. DeFi Watch founder Chris Blec accused the exchange of “​​bribing users to allow their faces to be scanned & disguising it as a ‘promotion,’” hypothesizing that dYdX and other platforms could offer greater incentives in return for clients giving up more information.

“What dYdX is doing now is just wrong,” said Blec. “They’re misleading users on the intent. They know that every face scan they’re collecting is from an innocent. A criminal won’t face-scan but can still use dYdX. They’re bribing new users to give up privacy just to satisfy regulators.”

According to dYdX — which reported “reviewing many solutions” — the face scans were a solution that offered “the best UX for our users to indicate that they are, indeed, one person without revealing their full identity.” In a statement to Cointelegraph, a dYdX spokesperson said that the promotion did not require users to “provide personal information” and the image verification was intended “solely to prevent fraud.” Marc Boiron, the chief legal officer of Polygon and former chief legal office at dYdX, also claimed on Twitter that the liveness checks were “incomplete and ineffective without combining it with other requirements.”

However, Blec claimed that the exchange may have been acting on behalf of regulators:

“It’s ridiculous to assume that a crypto exchange paying people to scan their faces is for any reason *except* some form of regulatory compliance, or at least testing a mechanism that they plan to expand in the future.”

“No matter the cause, this is an absolutely horrible idea and you should walk this back immediately,” said Adam Cochran, a general partner at Cinneamhain Ventures. “There is absolutely no acceptable reason to be collecting user biometrics. You’d be better dropping the incentive program entirely.”

Related: dYdX confirms blocking (and unblocking) some accounts flagged in Tornado Cash controversy

From its Twitter account, a dYdX spokesperson said the verification had “ZERO to do with regulations” and was “simply a product to detect if you are a unique person.” However, the platform seemingly did not address concerns as to what service would be providing the facial scans and how the data would be stored.

dYdX confirms blocking (and unblocking) some accounts flagged in Tornado Cash controversy

The platform said it has used compliance vendors to scan for and flag accounts potentially associated with illicit activities, including sanctions lists for many countries.

Cryptocurrency derivatives trading platform dYdX said it blocked some users’ accounts with funds linked to Tornado Cash, including mistakenly suspending some that never directly engaged with the controversial mixer.

In a Wednesday blog post, dYdX said it had “unbanned certain accounts” that the derivatives platform had blocked in response to the Office of Foreign Assets Control of the United States Treasury Department adding Tornado Cash to its list of Specially Designated Nationals, or SDNs. According to dYdX, its compliance provider flagged many accounts believed to be linked to Tornado Cash, which the platform subsequently blocked — despite the fact some had never dealt with the crypto mixer. The platform said it has used compliance vendors to scan for and flag accounts potentially associated with illicit activities, including sanctions lists for many countries.

“This sudden influx of flags affected many account holders that never directly engaged with Tornado Cash, and often such users do not realize the origin of the funds transferred to them during various transactions prior to interacting with our platform, but we must nevertheless maintain certain restrictions,” said dYdX.

According to dYdX, banning the users did not amount to seizing funds, which they said would always be available for withdrawals. However, the platform can place accounts in “close-only mode.”

Many crypto trading platforms have blocked access to Tornado Cash following the U.S. Treasury adding the controversial mixer to its sanctions list on Aug. 8. As an SDN, “U.S. persons are generally prohibited from dealing with them,” and firms and individuals listed have their assets blocked — this would include 44 USD Coin (USDC) and Ether (ETH) addresses connected to Tornado Cash.

Following the sanctions announcement, stablecoin issuer Circle froze more than 75,000 USDC worth of funds on addresses listed by Treasury officials. However, actions against individuals associated with the crypto mixer extend beyond centralized exchanges based in the United States. Tornado Cash co-founder Roman Semenov reported developer platform GitHub had suspended his account. On Tuesday, Web3 development platform Alchemy and Infura.io followed by blocking remote procedure call requests to the mixer.

Related: TORN price sinks 45% after U.S. Treasury sanctions Tornado Cash — Rebound ahead?

Some critics of the Treasury’s decision to add Tornado Cash to its list of SDNs have said the crypto mixer is a “neutral tool” that can be used by anyone, rather than a platform aiming to use it for illicit purposes. In a Tuesday statement, Lia Holland of tech advocacy group Fight for the Future called the Treasury’s actions “clumsy” by using sanctions against bad actors like North Korean hacking group Lazarus that also affected users with “legitimate reasons to seek anonymity in financial transactions.”

“Tornado.cash is code, and rather than identify those who were aiding and abetting criminals the Treasury simply sanctioned that code,” said Holland.

With the bear market in full throttle, crypto derivatives retain their popularity

“Derivatives provide opportunities to protect their portfolios during times of heightened market volatility,” says Emerson Li, brand lead at BingX.

The 2022 cryptocurrency bear market has been the worst on record as most Bitcoin traders are underwater and continue to sell at a loss. In response to the rapid decline of token prices, some investors have fled to safe-haven assets; some have exited the market completely and others have perplexingly turned to the enigmatic market of crypto derivatives. 

With regards to this, Cointelegraph spoke to BingX’s brand lead Emerson Li. BingX is a Singaporean social-based cryptocurrency exchange known for its leaderboards where users can compete with others for returns on investments as well as share ideas among their followers. The exchange processed around $319 million in trading volume within the past 24 hours, mainly consisting of derivates. Regarding the recent market downturn, here’s what Li had to say:

“BingX’s users are also proliferating; compared with Q1 2022, Users number increased by 70% in the second quarter, and transaction volumes doubling since this round of slumps. We believe that its demand for derivatives is still increasing because it allows users to profit from falling prices, a feature that other products do not have.”

During bear markets, traders can purchase derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. While this can be done by simply shorting the coin, violent and periodic bear market rallies can lead to theoretically infinite losses on one’s short position. In addition, a lack of liquidity for borrowing coins to short may lead to exchanges charging high-interest rates on one’s positions. On the other hand, the put buyer’s losses are theoretically limited to the premium they paid for the derivative, and there are no additional interest fees. 

Li went on to explain that BingX is also seeing a sharp increase in deposits as of late. “Since high market volatility is suitable for the derivatives market, we see more users participating in such transactions and stimulating more demand for deposits.”

Money also appears to be flowing back to CeFi products from DeFi protocols. “For high-risk products such as DeFi staking, we believe traders have panicked under the recent market, affected by the Terra (LUNA) — since renamed Terra Classic (LUNC) — affair and the problems with many DeFi protocols. Users’ risk appetite has decreased, and demand has declined,” said Li. 

Indeed, dYdX, a decentralized crypto exchange known for its margin and perpetual contract products, saw its weekly trading volume fall approximately 90% from the $12.5 billion witnessed from Oct 24 to Oct 30 last year. However, the trading volume is still several magnitudes higher than one year ago, partly due to the aforementioned risk-hedging tailwind. 

Risk-wise, it would appear that the worst is over as a spike in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has dissipated since mid-June. Experts from Glassnode noted tokens held in wallet addresses by both new investors and crypto whales had been increasing meaningfully amid the sell-off.