Aurora, the company behind the popular decentralized exchange IDEX, announced yesterday that it will be blocking users logging in with New York State IP addresses. In a move that provoked a range of responses from disappointment to anger, it’s evident that Aurora is drawing a hard line. The reason Aurora gave was because they did not have a BitLicense, an authorization from the state to work with cryptocurrencies.
The BitLicense, implemented in 2014, has been labeled an “absolute failure” by ShapeShift CEO Erik Voorhees, amid claims that it has targeted the wrong people, stifled innovation, and driven fintech from the state. Obtaining a BitLicense can be expensive and arduous, as Genesis found out when it took them three years to be awarded the license.
When is a Decentralized Exchange not a Decentralized Exchange?
Responses to the news were, predictably, quick and variable. Amid accusations that a decentralized exchange should be immune from government intervention, Aurora’s response was telling:
“Nearly all current DEX’s have centralized aspects, and immunity to government intervention is in no way guaranteed.”
This led to accusations of Aurora disguising the true nature of the IDEX exchange, which brings into question the issue of true decentralization. In being able to block IP addresses, IDEX has shown that it does indeed have aspects of centralization, even though it doesn’t hold user funds in its own wallets; a better term for exchanges like this would be ‘non-custodial’. Whether any truly decentralized exchanges operate within the crypto space is, it would seem, not as clear-cut as once thought. It may only be when events like this occur that we see how truly decentralized or otherwise an exchange is.
Exchanges in general have felt the pressure of imminent regulations this year more than any, with Binance recently announcing a linkup with Chainalysis to counter illegal activities and Shapeshift being forced to end user anonymity. Aurora’s decision to ban New York State IP addresses will have come as a shock for users who mistook partial for complete decentralization. It may not be long before we find out what goes on behind the screens of our other favorite trading houses too.