Popular peer-to-peer (P2P) trading platform Paxful has announced that it will be closing down its marketplace and asked users to withdraw their funds, just as the crypto industry is beginning to recover from a year-long slump.
The company’s co-founder and CEO Ray Youssef on Tuesday said that the company had suffered some key staff departures without initially giving details on the circumstances that had led to that.
“Also, regulatory challenges for the industry continue to grow especially in the peer-to-peer market and most heavily in the US. While we work through these issues, we have taken the most secure option and ask you to secure self-custody and trade elsewhere,” he said.
Youssef on Tuesday later revealed in a Twitter Space that Paxful’s woes primarily have to do with a lawsuit filed against the company and himself by one of its co-founders who was kicked out of the company about a year ago.
“The co-founder’s litigation team drove away all of our senior-level staff. He refused to pay our engineers and compliance people,” Youssef said, adding that the company has accumulated a $6 million compliance bill.
By Friday last week, Mr Youssef revealed the company had been left without any operational staff. So he chose to close down the company, defying a court order preventing him from doing anything.
“I couldn’t do it anymore. Ethically, there’s no way I’m going to lie to people and tell them that this is a safe place, and their funds are safe when they’re not,” he said.
‘140 percent rise’
Paxful has been one of the leading P2P trading platforms in sub-Saharan Africa, where majority of crypto transactions are small-scale and the proportion of P2P dealings as a share of all crypto transactions has been highest globally.
“In the year to November 2022, Paxful recorded a 140 percent rise in the number of users,” Mr Youssef told crypto research firm Chainalysis in their latest Geography of Cryptocurrencies report last year.
Since its Kenya launch in May 2016, Paxful has recorded an average weekly trading volume of KSh297.9 million ($2.23 million) in the country.
In the last week, ended April 1, KSh206.2 million ($1.55 million) was traded on the platform in Kenya alone. Globally, $36.8 million was traded on the platform last week.
Its collapse comes at a time when the crypto industry was just beginning to recover from a year-long slump that was occasioned by the collapse of a crypto token Luna and exacerbated by the folding of the crypto exchange platform FTX, within months of each other. So far, the total crypto market cap has risen from the $828 billion last November to about $1.2 trillion, where it currently stands, with the price of the largest cryptocurrency Bitcoin, rising from $15,883 in November last year to $28,501 currently.
No funds will be lost
However, analysts posit that Paxful’s collapse will not cause as much turbulence in the crypto industry as was witnessed in the aftermath of the folding of Luna and FTX did last year.
Paxful’s former country manager for Kenya Yvonne Kagondu says that unlike the case with FTX and Luna, users have not lost and will most likely not lose any funds following Paxful’s closure.
“For example, FTX which was one of the largest crypto exchanges in the world would use their user deposits in outside investments without the knowledge of their users. So, they became insolvent when the users wanted to withdraw,” she explained.
According to her, both Luna and FTX collapsed because of decisions made by one central body or person, which were mostly ‘flawed’ and sought to enrich the founders.