Paxful Calls It Quits Amid Internal Drama, Regulatory Pressure

Trouble in Paradise and Uncle Sam

In a spontaneous Twitter Space hosted by Brad Mills, Ray Youssef said he decided to call it a day out of the concern for user funds due to an ongoing lawsuit against him and the company by co-founder Artur Schaback.

“I have a lawsuit over my head right now,” Youssef said. According to him, Schaback is nursing hard feelings after being “kicked out” of the company a year ago. “I couldn’t guarantee the security of the platform. This is why this thing had to go down.”

He continued: ” [Schaback] was pissed, so he sued the company, and his litigation team was really nasty. They drove away all our senior-level staff. They just couldn’t deal with this guy anymore and then he refused to pay our engineers and he refused to pay our compliance.”

Although the court ordered him not to make any major moves, Youssef said he “couldn’t do it anymore, ethically” and took “massive legal liability” to end it all.

Meanwhile, according to the CEO, Paxful couldn’t win with US regulators. In frustration often echoed by other industry players, Youssef lamented the company has “been bending over backwards for the past five years to comply with the highest standards,” but regulators “still don’t get it, and it’s painful to see.” He revealed that a quarter of the company’s staff was compliance people, but “not even that was enough to please Uncle Sam.”

Upon the exchange’s closure, Youssef urged users to withdraw funds and preferably self-custody, recommending Exodus and Muun wallets.

He also advocated for Noones and Bitnob for BTC trading. Noones is an app still in development that will power a P2P marketplace for the Global South and will initially let users trade BTC, USDT and USDC. Bitnob is a Nigeria-based app that users in select African countries can use to buy, sell, and save in Bitcoin.

Paxful Over The Years

Paxful burst on the scene in 2015 and quickly shot to success to become a household name, especially in African countries such as Nigeria, Ghana, South Africa, and Kenya, even making the Times 100 Most Influential Companies prestigious list along the way.

By 2023, it had processed over $5 billion dollars in transactions and registered over a six million user base with a presence in over 100 countries.

The company supported 350+ payment methods for users to buy and sell cryptocurrencies, including cash deposits, gift cards, online and mobile money wallets, and bank transfers. Over the years, Paxful expanded its offerings beyond Bitcoin to include other assets such as Ethereum, Litecoin, USDT, and USDC.

But for all its success, Paxful missed the fine print on customer experience. While it had trader protection mechanisms like escrow and dispute resolution in place, that didn’t stop a horde of fraudsters from pitching tent in the exchange. As someone who used the platform, my experience was that the exchange’s trading climate could be awfully lax or downright scammy.

Such scammy behavior could include:

• Multiple buyers flouting the no-negotiation rule for P2P trades
• Traders routinely canceling a trade with no warning to the other party (a practice explicitly forbidden on, say, Binance)
• Buyers attempting to buy crypto at not just below their set price for trades but below the market price
• Traders ripping off unwitting, new users

Indeed, a cursory check on online forums like Reddit seems to show plenty of irate users, with the common theme being “Paxful is full of scams” and the grievance that the exchange does little to nothing to protect customers.

While there will always be people looking to cheat the system wherever there’s money to be made, and Paxful does have positive reviews, it doesn’t mean a section of its users didn’t find its trading environment super unprofessional.

Looking Ahead: Other P2P Crypto Trading Alternatives

Paxful is the latest P2P exchange to take a bow after the legendary Bitcoin-only exchange LocalBitcoins closed shop in February. Both exchanges felt the regulatory heat, with the Finnish company once saying compliance demands in Europe had impacted its operations. Paxful losing the battle is another bitter pill to chew for an industry that can’t seem to make regulators happy.

But what other P2P alternatives are out there for Paxful users? Here are some of the most trusted:

1. Binance P2P: A marketplace that lets users buy and sell cryptocurrencies using their local currency. It’s a platform offered by Binance, the largest cryptocurrency exchange in the world by volume
2. Huobi P2P: A platform by Seychelles-based exchange Huobi that allows users to buy and sell directly from another party.
3. Bisq Network: An open-sourced and privacy-focused Bitcoin trading platform built on Tor
4. Hodl Hodl: An open-sourced Bitcoin trading solution that uses a multi-signature escrow system to achieve secure and trustless transactions

The Bottomline: P2P Will Live On

Paxful’s closure was an unexpected development. The shutdown, caused in part by regulatory scrutiny, is a reminder that heavy-handed oversight remains a thorn in crypto’s side.

It’s also a cautionary tale for leadership not reading from the same script. In an already precarious environment, crypto companies that keep the peace will be better equipped to survive.

But despite a sticky legal landscape, the cryptocurrency industry continues to grow. It’s heartening that protocols like Bisq and Hodl Hodl, which are decentralized and hence immune to regulatory crackdown, exist and can fill the gaps in times like these.