The Russian invasion of Ukraine continues, and many countries and businesses have condemned the nation in the form of sanctions and cutting off services. Animoca Brands Corp. Ltd, one of the biggest blockchain gaming companies was the latest to join the list of companies to stop its services to Russian customers in response to Russia’s attack on Ukraine.
Crypto takes the center stage
In an ongoing conflict between the two countries, cryptocurrencies are possibly the only usable form of currencies for Russia and Ukraine. While Ukraine is trying to strengthen its military and civic life using crypto donations, Russia was seen funding its attack. While several crypto exchanges have been asked to discontinue serving Russian users, only a few have paid heed.
Hong Kong-based Animoca Brands became the first crypto business to act upon the request. Although the co-founder, Yat Siu said that the decision will affect its subsidiaries like Gamee and Lympo, it would not impact it much as the Russian users did not make a large group.
As per reports, Siu stated,
“The legal advice we’ve been receiving is we now have to impose some restrictions. It’s a sanctioned country on par with North Korea. The moment we end up doing business in those areas, we might ourselves become financially excluded from the financial system.“
Gamee had already stopped services for Russian users last week, while Lympo stopped publishing non-fungible tokens [NFTs] of Russian athletes and halted all ongoing negotiations. As Russia was categorized among the heavily sanctioned nations, Animoca will stop selling its shares to Russian investors.
Recently, Ukraine Vice Prime Minister Mykhailo Fedorov called for crypto exchanges to block addresses of Russian users, but major exchanges like Binance and Kraken resisted this action. As per the major crypto exchanges, this was seen contrary to the libertarian ethos of an industry that caters to those seeking to shelter assets beyond government reach.
According to Binance,
“To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.”
Meanwhile, OKEx also noted that it had no plans to bar Russian accounts in bulk.
However, this theory, posed by Binance and often many crypto users, is now being put to test. At a time when Russia is using the backdoor in the form of crypto to evade heavy sanctions and continue to attack Ukraine.
Per reports, trading between the Russian rouble and crypto-assets like Bitcoin [BTC] and Tether [USDT] doubled since the assault on Ukraine began. According to data provided by Chainalysis, trading between these pairs reached $60 million a day on Monday. This highlighted that Russian accounts, that were barred from the established dollar-based financial system through sanctions, were possibly holding funds in crypto or moving wealth overseas.
The White House official and the President of the United States of America, Joe Biden and his administration noted it was “continuing to aggressively combat the misuse of cryptocurrency, including to evade US sanctions.”
Cryptocurrency served as a decentralized financial power to the people to escape governments and heavy taxation. It has also helped people to remain financially stable in the face of oppression by the government or other countries. In 2019, we saw citizens of Hong Kong use crypto to continue to resist China’s proposed extradition legislation.
At the time of such social unrest, the governments have tried to curb people from using their bank accounts to paralyze financial aid. However, crypto remained as an alternative- out of the hands of centralization.
Russia, Crypto, and regulations
Now, we are posed with one such moral dilemma of whether to thwart services for Russians given the circumstance or should we let crypto maintain its decentralized essence? Russia was and remains among the top 20 countries worldwide with the highest level of crypto adoption, as per the Chainalysis index. It is also an example of “capital flight and tax avoidance” which pushed crypto adoption in Eastern Europe.
In the wake of such sanctions, it was not only the oligarchs that were going to be impacted but also the general public- most of whom oppose the war in the first place. Russia has also introduced capital controls banning Russians from transferring foreign currency abroad or from servicing new debt in foreign currency outside the country.
Russian Rouble is falling to new lows after SWIFT, the messaging system that underpins global payments, restricted certain Russian banks’ access. ApplePay and GooglePay have also put a stop to the service in the country. Now, the citizens of Russia were also in a state of quandary.
When it is a fight between citizens vs the state, crypto has always been on the side of the people. It was currently helping, raising funds, and accepting donations to help Ukraine, however, was against a blanket ban of services for a whole country.
As another crypto exchange, FTX pledged to honor sanctions on individuals, but not implement a ban on the country. Founder Sam Bankman-Frien stated,
“You have to make sure that you are not being a gateway for sanctions evasion and money laundering.”
The crypto operators will be on the hook for what they ought to know about the ownership of the assets then handle, as per Jason Hungerford, a partner at law firm Mayer Brown in London.
However, if Russia continued to use crypto as a means to evade taxation, there could be a serious talk about regulating crypto-assets tabled soon globally. While traditional finance systems like the banks and their products are saved, crypto might witness increased scrutiny at the hands of lawmakers to continue on its path.