KuCoin announces $10 million airdrop as users withdraw $1.2 billion

KuCoin CEO Johnny Lyu announced the news in a blog post, which comes amid legal challenges and charges filed by the United States Justice Department against the exchange and its founders.

While Lyu’s letter to users did not directly address the federal charges, it opened with a message of gratitude towards KuCoin’s user base for their support and trust during a tumultuous period. The CEO drew parallels between the airdrop and the exchange’s past initiative to reimburse investors affected by the Confido rug pull.

Details on the airdrop rules are slated to be released within three days, but it comes amid growing concerns that led to increased withdrawal volumes and customer apprehension. Additionally, the decision to proceed with an airdrop is not without its risks, particularly from a regulatory standpoint. The Securities and Exchange Commission (SEC) said earlier that airdrops, even when free of monetary exchange, could still meet the criteria of an “investment of money” under the Howey test, potentially classifying them as securities distributions.

KuCoin, the fourth largest crypto derivatives and fifth largest spot exchange, is alleged to have skipped necessary Anti-Money Laundering (AML) procedures, making it a conduit for money laundering and terrorist financing. The lack of customer identity verification and failure to report suspicious activities has led to the platform facilitating over $9 billion in suspicious transactions, according to US Attorney Damian Williams.

This comes in tandem with a complaint by the Commodity and Futures Trading Commission (CFTC) accusing KuCoin of engaging in illegal commodity transactions without proper registration.

Data from Spot on Chain indicates that net outflow from KuCoin reached $1.19 billion in the last 24 hours. Despite these withdrawals, KuCoin still holds assets worth roughly $4.02 billion. The exchange also experienced delays in transactions, fueling speculation about its stability. However, KuCoin has sought to reassure its user base of over 30 million customers through a statement on X, emphasizing that the platform is operating normally and user assets are secure.

Further complicating matters, reports surfaced suggesting that KuCoin had previously considered halting operations and selling the exchange in 2023.

KuCoin agreed in December to a settlement with the New York Attorney General’s Office, resolving a lawsuit that challenged its operations in the Empire State. As part of the settlement, KuCoin paid $22 million in fines and refunds and ceased its trading activities in New York.