On March 17, the crypto asset trading platform OKX provided the reason for suspending its Web3 DEX aggregator service — discovering that the North Korean Lazarus hacker group was abusing its DeFi services, and proactively suspended services after consulting regulators.
The next day, another leading platform, Binance, upgraded its early project 'discovery tool' Alpha within its Web3 wallet to 2.0, directly integrating it into the CEX main site, allowing users to purchase with crypto assets directly.
With one move up and one down, the actions of the two giants in the crypto asset industry regarding their Web3 products have once again opened up discussions on whether KYC should be introduced, and how DEX and DeFi should respond to regulatory scrutiny from mainstream countries.
In the battlefield of Web chain asset infrastructure, the strategies of the two giants not only reflect their grasp of market trends but also reveal the deep game between regulation and technology in the crypto industry.
OKX 'actively suspended DEX services after consulting regulators.'
On March 11, Bloomberg reported that European crypto regulatory agencies are reviewing whether OKX was exploited by hackers to launder some funds stolen from Bybit. Although OKX quickly responded that it was not under investigation and emphasized its technical neutrality as a DEX aggregator, the impact of the incident is still unfolding.
On March 17, OKX announced that after consulting with regulatory authorities, it proactively decided to suspend its Web3 DEX aggregator service due to the discovery of the North Korean Lazarus hacker group abusing its DeFi services. OKX stated that this move is to implement technical upgrades and prevent further abuse, reiterating that its Web3 services are not custodians of customer assets.
After the news broke, many users in the crypto sphere expressed sympathy for OKX, believing that regulatory pressure is targeting North Korean hackers, with OKX, as a third-party technology provider, becoming a 'scapegoat' for hackers, similar to 'antivirus software mistakenly deleting system files.'
OKX Web3 DEX aggregator service suspended.
Indeed, OKX's Web3 DEX aggregator is essentially a technical tool, not a contract or protocol, nor an asset custodian. As a provider of Web3 products and services, OKX may currently face a dilemma between compliance and technology.
On one hand, as the first global exchange to obtain pre-authorization under the EU's MiCA (Market in Crypto Assets Regulation), OKX attempts to set an industry benchmark through compliance; on the other hand, although its Web3 wallet and related features strive to maintain the industry's tradition of 'decentralization,' including non-custodial properties and allowing users to access the chain without applying to OKX exchange, this positioning of technical neutrality makes it somewhat passive in dealing with hacker attacks.
However, regulatory bodies are clearly not satisfied with such a 'technically neutral' explanation.
Taking the EU's MiCA as an example, the regulation covers all 'crypto assets' and their related services. Although DeFi and DEX are known for their decentralized characteristics, MiCA has not yet clarified the boundary between 'fully decentralized' and 'partially decentralized,' but the regulation does not seem to intend to give them a pass.
According to the definition of MiCA, MiCA considers any entity providing services related to crypto assets as a CASP (Crypto Asset Service Provider), including DEX and DeFi protocols. MiCA emphasizes that regardless of the technical form (centralized or decentralized), as long as it involves the issuance or trading of crypto assets, it must comply with relevant regulations.
OKX's suspension of services also reflects the vulnerability of decentralized Web3 products under the existing regulatory framework. Although OKX emphasizes that its Web3 wallet is not an asset custodian, regulatory agencies in mainstream countries where crypto assets circulate have been stressing that 'any platform involved in the flow of funds should bear the responsibilities of anti-money laundering (AML) and counter-terrorism financing (CFT).' This regulatory logic directly conflicts with the decentralized philosophy of Web3.
Some commentators believe that OKX is like a 'canal company without an X-ray machine,' forced to suspend services and upgrade products under regulatory pressure. This adjustment not only affects user experience but may also adversely impact its competitive position in the Web3 ecosystem.
Market analysts predict that under regulatory requirements, OKX may have two choices: one is to include KYC as a mandatory option in product usage thresholds; the other is to separate the wallet and exchange operations. The former can keep up with regulatory requirements and stabilize the situation, but the Web3 ecosystem may be limited; the latter isolates regulatory risks and maintains decentralization, but requires re-downloading applications, which not only diminishes convenience but also inadvertently separates exchange traffic from wallets, making it easy to lose users.
Regardless of which path is chosen, OKX will need to balance user experience with compliance requirements in the future.
Binance Web3 product Alpha 2.0 directly connects to the main site.
Just as OKX suspended its DEX aggregator service, another crypto asset giant platform, Binance, which is applying for MiCA authorization, has begun proactive layouts at the Web3 product level.
On March 18, Binance announced that its Alpha 2.0 version was officially launched and directly integrated into the Binance trading platform's main site, allowing users to use assets like USDT to purchase on-chain tokens without needing to withdraw assets to external wallets.
Binance stated that this expansion aims to bridge the experiential gap between centralized trading (CEX) and decentralized trading (DEX), simplifying the trading process while enhancing users' fund efficiency and accessibility to decentralized trading.
Binance Alpha enters the CEX main site.
Binance Alpha is a platform product originally positioned within the Binance Web3 wallet, focused on uncovering early crypto projects with growth potential on-chain. The launch of Binance Alpha 2.0 marks a strategic upgrade for Binance in the Web3 field.
In mid-last year, Binance's Web3 wallet was widely commented as 'not matching OKX' during the Bitcoin inscription market frenzy. Later, even Binance co-founder He Yi admitted that their Web3 wallet and market products had not yet reached optimal status.
Currently, the approach of Alpha 2.0 connecting CEX and DEX is stimulating user interest. Some users believe that by bringing small-cap projects (like meme coins) onto the main site, it not only enhances the wealth effect of Binance's main site but also solidifies BNBChain's dominant position in the Web3 ecosystem.
More importantly, Binance has provided a more controllable trading environment for regulators by seamlessly integrating on-chain asset trading with CEX. It should be noted that Binance's Web3 wallet is a custodial wallet for crypto assets, and to use this wallet, users need to pass KYC (Know Your Customer) tests.
Binance's strategy, to some extent, is 'exchanging compliance for innovation,' by incorporating on-chain asset trading into the CEX framework to better meet the regulatory requirements of mainstream countries, such as KYC and AML. In the wake of OKX's suspension of DEX services, Binance's 'centralized + decentralized' hybrid model may become the mainstream development direction for future Web3 products.
However, while Binance Alpha 2.0 can achieve short-term appeal for its Web3 products, it also faces potential regulatory risks — the volatility of small-cap projects and compliance pitfalls may become concerns for its future development. Moreover, as global regulatory bodies increase their focus on the crypto industry, Binance still needs to continuously adjust its balance between innovation and compliance.
Decentralized Web3 products 'dance the tango on the edge of a knife.'
One provides custodial services, while the other does not; one must KYC, while the other offers optional KYC. From the practices of Binance and OKX, it can be seen that the introduction of custodial versus non-custodial and KYC in Web3 products essentially represents a game between decentralization and compliance, requiring consideration of mainstream countries' regulatory attitudes toward Web3 products.
OKX's product strategy is different from Binance, sparking intense discussions about whether Web3 products should introduce KYC. KYC (Know Your Customer), as a core compliance requirement in traditional finance, is gradually infiltrating the crypto industry. However, for Web3 wallets, the introduction of KYC means a compromise on the principle of decentralization.
Proponents of KYC argue that 'compliance is the prerequisite for survival,' as KYC is a necessary condition for Web3 wallets to gain legal status under the regulatory frameworks of mainstream countries. From the perspective of 'user protection,' KYC can effectively prevent hacker attacks and fund abuse, protecting users' asset safety; additionally, at the 'market trust' level, KYC can enhance institutional investors' and ordinary users' trust in Web3 wallets, driving the mainstreaming of the industry.
Opponents argue that KYC 'deviates from decentralization,' meaning users need to submit personal information to centralized institutions, which contradicts the decentralized philosophy of Web3. Additionally, the 'technical complexity' makes implementing KYC in an on-chain environment more challenging and could affect user experience; regarding 'privacy risks,' KYC requires users to submit sensitive information, which may increase the risk of data breaches and privacy violations.
However, the regulatory frameworks represented by mainstream countries are gradually incorporating DEX and DeFi into their regulatory scope. The core demands of major regulatory bodies include anti-money laundering (AML) and counter-terrorism financing (CFT), both requiring platforms to verify user identities and monitor fund flows; they must also bear asset custody responsibilities, even non-custodial platforms may be required to assume some asset custody responsibilities; there are also transparency requirements, which require platforms to regularly submit transaction data and compliance reports.
The strategic differences between the two giant platforms in Web3 products are a microcosm of the entire crypto industry's search for balance between compliance and innovation. In this game, the introduction of KYC and the compliance path of DEX and DeFi will be key factors determining the fate of Web3 products.
The front lines are long, and the situation remains uncertain. For industry participants, how to skillfully handle compliance as a 'double-edged sword' and 'treat regulation as a bulletproof vest rather than shackles' is indeed a test of survival wisdom. Moreover, achieving technological innovation within the compliance framework will become the core competitiveness of industry builders.
(Disclaimer: Readers are urged to strictly comply with local laws and regulations; this article does not constitute any investment advice.)