Aurora (IDEX), the largest decentralized exchange according to DappRadar, will begin blocking users from New York State.
The announcement was made yesterday on Twitter, around 19:00 UTC. Users will still be able to withdraw their funds but deposits and trades will be halted tomorrow, October 25th, at 18:00 UTC.
***Notice: #IDEX will begin blocking new orders from users with New York State IP addresses on Thursday, October 25th (6pm UTC). Cancels and withdrawals will remain active.
— Aurora (IDEX) *Not Giving Away ETH* (@Aurora_dao) October 24, 2018
It is speculated that the reason behind the ban is New York’s crypto regulatory environment. Any business that is involved in virtual currency activities in New York State must have a business license, BitLicense, issued by the New York State Department of Financial Services (NYSDFS).
Some users replied to the tweet suggesting that the problem could easily be worked around by using a VPN or hiding the IP address.
Others complained, mostly jokingly, that IDEX can not be decentralized if they restrict people from trading. Besides being able to geographically block users from trading, others pointed out that if users are required to deposit tokens – instead of trading directly from the wallet – it stops being a decentralized exchange.
Many tweets, together with a 4chan post, claimed that IDEX would be enforcing Know Your Customers (KYC) policies in the future. However, no evidence was provided to back up the claims.
Using IDEX does mean that users still have to rely on trusted third party, Aurora DAO, to maintain the order books. By doing so, it is able to trade-off decentralization for other features. It works as follows:
“IDEX acts as an arbiter for every trade, meaning that the IDEX smart contracts validate transactions before submitting them to the Ethereum network. This serves a couple of functions. First, it allows IDEX to quality control orders, making sure that every trade is valid before executing it and keeping a queue of transactions to streamline processing. Second, IDEX can update account balances off-chain after they submit a transaction, allowing for the convenience of a centralized exchange without sacrificing security.”
This was borne out last September when the organization refunded users after suspicions rose regarding a newly listed token:
“After listing VXCR on IDEX, we became aware of suspicious behavior linked to their token contract. We immediately suspended trading and began an internal investigation of the issue. After identifying an error in their contract we reached out to inform their team.” – Forrest Whaling, Head of Marketing at Aurora DAO