Phoenix and Wasabi Halted US Operations Amid Regulatory Pressure: Self Custody on Trial?

• As the government targets self-custody wallets, Phoenix and Wasabi have halted their operations in the US.
• This decision follows regulatory actions against Samourai Wallet and the MetaMask vs. SEC lawsuit.
• These developments further complicate the future of the decentralized finance (DeFi) sector in the US.

Phoenix Wallet and Wasabi Wallet are discontinuing their services for United States (US) customers. The companies behind both services expressed concerns regarding the legitimacy of self-custody wallet service providers as money services businesses.

This action follows regulatory action by US authorities against Consensys, MetaMask’s parent company, and Bitcoin mixer Samourai Wallet.

US Government Strikes Samourai Wallet and MetaMask

Last Friday, ACINQ, the developer of Phoenix, expressed concerns regarding recent actions by US authorities. 

These actions have raised doubts about whether providers of self-custody wallets, Bitcoin Lightning Network (LN) service providers, or even Lightning nodes might be classified as money services businesses and thus subject to regulation.

ACINQ admitted it would assess other potential impacts on its operations as it removes Phoenix Wallet from US application stores. It scheduled the removal to happen on May 3.

See Also: Yuga Labs CEO Announces Layoffs, Focusing On ‘Getting Back To Roots’

zkSNACKs followed suit on Saturday (27/4) by blocking US residents and citizens from using all of their services.

“zkSNACKs is now strictly prohibiting US users from using its services. An IP address blocking for US residents is effective on wasabiwallet.io, api.wasabiwallet.io and zksnacks.com … If you are a US citizen or US resident, you are not allowed to visit any sites aforementioned, download Wasabi Wallet or use the Wasabi Wallet coinjoin feature. This includes if you are a US permanent resident or if you are an individual who holds a US passport,” the zkSNACKs team wrote.

US regulators have recently targeted self-custody wallets. The officials signal concerns that those tools might be used for unauthorized or illicit activities, including money laundering.

On April 24, US authorities arrested Samourai Wallet’s founders on charges of involvement in laundering $100 million from Silk Road and other black markets. They have been charged with developing, marketing, and operating the Samourai Wallet since 2015.

Samourai’s web servers and domain have been seized, and the app is no longer available for download from Google’s Play Store in the US.

A day later, on April 25, Consensys announced a lawsuit against the US Securities and Exchange Commission (SEC). The company called SEC actions “an unlawful overreach of authority” regarding Ethereum.

In its lawsuit, Consensys refutes the SEC’s position. It emphasizes that Ethereum does not meet the traditional security criteria and that the SEC had previously indicated as much.

Indeed, the SEC’s current view against Ethereum has sparked controversy, especially after a clear stance in 2018 that Ethereum did not meet the security criteria.

“Based on Director Hinman’s point in 2018, there is no difference between now and 2018. Today, in terms of the theories and openness, if anything, the number of people who develop and work on Ethereum and have adopted it is even broader than it was before,” a Consensys said.

Moreover, the lawsuit accuses the SEC of attempts to regulate through ad hoc enforcement rather than clear guidelines.

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