How privacy coins Firo and Zcash dodged Binance delisting with novel transparency plan

Privacy coin enthusiasts can breathe a sigh of relief.

After Binance slapped a so-called monitoring tag on a slew of privacy coins earlier this month, many worried that assets like Zcash and Firo would soon be delisted.

Representatives from Zcash and Firo told DL News on Monday this wouldn’t happen.

For now, at least.

“While I prefer not to speculate on specific timelines, Binance’s approval for Zcash to implement the new address type seems to protect ZEC from immediate delisting,” Jason McGee, Zcash’s Binance liaison, told DL News.

“Although Binance hasn’t declared this a permanent fix, their willingness to adopt this change suggests an intention to collaborate on solutions with privacy coins, rather than resorting to immediate delisting.”

Could change their minds

It’s a positive step, but McGee said, “there’s always the risk they change their minds.”

Binance did not immediately respond to requests for comment.

Reuben Yap, Firo’s project steward, was equally hesitant after disclosing the project also met Binance’s compliance requirements.

European Union lawmakers are close to finalising new anti-money laundering laws that could prohibit privacy coins, and a decision is expected within weeks. Yap said new regime or a change in investors’ risk appetite makes the status of privacy coins tenuous.

Exchange-only addresses

Binance’s apparent decision to let the privacy coins stay listed appears to be a vote of confidence in a novel approach proposed by the issuers.

It’s a technical solution called “exchange-only” address types, which the Firo team developed last year.

Under the scheme, crypto exchanges wouldn’t be able to receive tokens for these projects unless the sending address is transparent. The exchange must be able to see the transaction history of its counterparties.

Zcash has two varieties of this solution: TEX Address and Traceable Unified Address. But Binance hasn’t indicated a preference for either.

This is sparking further discussion about which project should be implemented without precise guidance. “We’re still gauging the community’s preference,” McGee told DL News.

Privacy-preserving technology

Critically, these changes would happen at the wallet level, he said, and not at the protocol level.

“The new address type does not alter the fundamental aspects of Zcash’s privacy-preserving technology,” McGee said.

In the meantime, all tokens added to Binance’s monitor list are still tagged. The monitor tag flags users on the exchange that the assets “are likely to have higher volatility and risks compared to other listed tokens.”

Users can start trading after answering four questions in the affirmative and admitting that any losses incurred from transactions are customers’ responsibility.

It’s unclear whether Binance’s monitoring tag will be removed next quarter or how long it will take for the company to implement the “exchange-only” technical solutions.

“Monitoring isn’t a delisting,” Yap said. “It’s a ‘warning.’ But they put us on warning because of non-compliance with laws.”

Crypto rules around the world

Binance has come under enormous regulatory pressure in recent months.

In November, the company and its co-founder and CEO, Changpeng “CZ” Zhao, pleaded guilty to violating US banking law in connection with anti-money laundering violations. The company paid a $4.3 billion settlement and Zhao resigned as CEO.

In the meantime, OKX has already gone ahead and delisted these privacy coins and others.

With Europe’s sweeping Markets in Crypto Assets (MiCA) rules and new anti-money laundering laws soon coming into effect on the bloc, regulators are paying particular attention to privacy coins and crypto mixers.

“Right now, we have complied with all the requirements,” Yap told DL News. “But as MiCA comes closer, if there are additional guidelines, we may have to do additional things.”

For now, projects like Firo and Monero will remain in purgatory just a bit longer.

“No, this change does not mark the beginning of the end for privacy coins,” said McGee. “Rather, it represents the need for adaptability amidst evolving regulatory standards.”

Liam Kelly is DL News’ Berlin correspondent. Contact him at liam@dlnews.com.