On ShapeShift and the FOX Token
ShapeShift, founded by early Bitcoin proponent Erik Voorhees, provides global trading of a variety of digital assets. Headquartered in Switzerland, and founded in 2014, the company runs operations out Denver. Before divulging himself as CEO in March 2015, Voorhees initially founded the company under an alias: Beorn. It was an “unsubtle reference to the shapeshifting bear in Lord of the Rings.”
ShapeShift’s thesis was that digital assets would become an entirely new class. “That we were on the cusp of a Cambrian explosion in variety and purpose of blockchains as well as the tokens built upon them,” wrote Voorhees in November 2019. “The entire crypto market cap was under $5 billion. Many were skeptical of this thesis, yet today this figure has grown to over $300 billion.”
The first customer transaction traded Bitcoin for Litecoin. Back then, an origami elephant moved across the user’s screen to announce an order’s status.
When Voorhees first discovered Bitcoin, he was excited about a currency not controlled by any central government. He thought Bitcoin could be a free market currency. In 2012, Voorhees co-founded Coinapult and worked as the Head of Marketing at BitInstant before founding ShapeShift in 2014. He also owned popular gaming site SatoshiDICE before selling it.
“That was all the incentive I needed to dedicate my life to it,” he said. “Bitcoin is very ideologically fulfilling, it’s my form of political activism, but it’s also a huge business opportunity.”
By September 2015, the likes of the Digital Currency Group, Roger Ver, Bruce Fenton, Trevor Koverko, and Michael Terpin had invested $1.6 million into the project.
The exchange’s initial iteration did not require users to sign-in to an account and was even described by TechCrunch as “a universal and anonymous cryptocurrency converter.”
Voorhees saw this initial iteration as a more secure option than other exchanges. “Basically its claim to fame is that there’s no account or sign up at all,” he said. “It’s sort of like a vending machine where you just visit the website, send one kind of digital currency, and we send you a different kind of digital currency,” Voorhees said. “We don’t ever have to hold customer money like a normal exchange. It’s a definite advance for consumer protection because there’s no risk of hacking or of the operators running away with money.”
Here’s how it originally worked: You request, say, Litecoin, and gave ShapeShift a deposit address. Then you deposit, say, Bitcoin, into a deposit wallet. The system then converts the currency automatically sans the need for personal information.
“I launched this project to demonstrate that currency exchange could be handled completely differently than anything done before,” said Voorhees. “Cryptocurrencies allowed non-custodial exchange, without users having to sign up or create accounts. This is impossible with fiat currencies, and yet every Bitcoin exchange was modeled after fiat currency exchanges. ShapeShift, like SatoshiDICE before it, demonstrated how an old business could operate in a brand new way because of the properties of cryptocurrencies.” Voorhees implemented a “no fiat” policy, and the site anonymized traffic so no information could be gathered by users.
“ShapeShift has no user accounts, signup, or registration process whatsoever,” he said. “But it’s faster and far more convenient than traditional exchanges.”
On October 1, 2018, the exchange began requiring identification from its customers. The company introduced a new self-custody platform in November 2019, enabling users to buy crypto with fiat, trade, track, and secure crypto.
In mid-2015, ShapeShift, a team of seven individuals at that point, released its iOS app, enabling users to exchange 35 digital currencies with a tap of their iPhone. ShapeShift went the iOS route because it anticipated a longer process getting listed on Apple’ App Store than Google Play.
“We wanted to do the Apple one first because Apple makes it tricky to get Bitcoin apps approved,” Voorhees said. “It was actually an extremely fluid process. I guess the ghost of Steve Jobs was looking out for us.”
Voorhees said that, while the exchange had 13,000 orders in May 2015, the margins were small. “Ultimately if we take any small piece of the global exchange market that will be plenty big for us to make money on,” Voorhees said.
ShapeShift Response to BitLicense
When New York released the BitLicense, ShapeShift was the first business to cease operations in the Garden State. It left a long note about how blockchain can prevent identity theft and redirected internet visitors there to PleaseProtectConsumers.org
“Bitcoin and blockchain technology have enabled a new standard of financial privacy and consumer protection… Unfortunately, in spite of the technological achievements that now protect consumers, some jurisdictions have legally mandated the continued extraction of sensitive private information.”
The note listed jurisdiction of New York State and North Korea, and invited other digital asset companies to cut off service to New York.
Fortune called it “quite a statement by a buzzy startup and a big name in the bitcoin community.” When New York unveiled the BitLicense, Voorhees tweeted that “California is winning.”
ShapeShift’s “moral and ethical stand,” as Voorhees called it, garnered comment by the NYDFS replied to Fortune’s request for comment regarding ShapeShift’s exit: “We always recognized that there is going to be some part of this community that is against even pretty standard financial regulatory oversight measures, such as anti-money laundering controls and other consumer protections. That said, one digital currency company has already received a license from NYDFS and a number of others have stated they intend to seek BitLicenses shortly. Ultimately, we believe that prudent regulation will be important to building greater consumer confidence in digital currency and sparking wider adoption.”
Voorhees told CNBC the company did not want to do something with which they did not feel comfortable, citing the risk of exposing customers to a potential data breach.
“We’re not going to spy on thousands of people purely to make their job a little bit easier,” Voorhees said, saying that it authorities used the proper channels, the company would provide wallet addresses, IP logs and information on devices used to accept the platform, but not names and addresses. Voorhees said the decision would cut off 1 percent of ShapeShift’s volume.
In 2019, ShapeShift unveiled its self-custody platform gave customers full control of their private keys but with the ease-of-use of a major exchange, like Coinbase.
“Largely this came from my dissatisfaction with the reality that most of the large companies are custodial,” ShapeShift founder and CEO Erik Voorhees told CoinDesk in an interview. “It offers many services that a company like Coinbase would provide but on ShapeShift it’s done in a much more secure and self-sovereign way.”
Self-custody empowers users to buy, sell, trade, and track 50 digital assets (and counting) in one place. Designed to minimize counterparty risk, users need a connected hardware wallet, such as Trezor or KeepKey, the latter of which ShapeShift acquired in 2017.
“There needed to be a platform that had great UX that my grandparents could use with limited instruction but that was built on a foundation of being non-custodial,” Voorhees said.“There’s a general sense within the industry is that if all that happens from the crypto revolution is that you just have a new set of custodians, then nothing really changed.” The new ShapeShift took a year to build, and 20,000 users took part in the platform’s closed beta.
“A lot of people see it as the better way to use a hardware wallet,” he said, indicating he planned to offer all DeFI (decetralized finance) assets, including lending markets, derivatives and more fiat options in the future. A know-your-customer check is required, and the company plans to release a mobile app.
“Large funds and institutions will likely still custody with third-party qualified custodians but as crypto becomes more mainstream, consumers will continue to custody using hardware solutions for some time,” Paul Veradittakit, a partner at Pantera Capital, which participated in ShapeShift’s $10.4 million Series A in 2017, told CoinDesk. “ShapeShift is providing a much better experience and product than the existing players.”
Voorhees said no other company has built a crypto platform that is non-custodial, with native exchange and dozens of digital assets on multiple chains for use in a standard web-browser.
“Our vision is a borderless financial system built on open, decentralized protocols,” wrote Voorhees in a company blog. “The new ShapeShift Platform maintains fidelity to this vision through a non-custodial model in which customers are sovereign over their assets.”
He added: “The crypto financial revolution will not be realized by a new set of custodial kings. You control your keys, you control your crypto. To us, this is not a slogan, but a mandate.
Looking ahead, we see digital crypto finance integrating further into — and then consuming — traditional analog fiat finance. The world’s financial infrastructure is, right now, being recast upon a borderless, digital foundation.”
In November 2018 ShapeShift announced support for Portis, a self-custodian multi-blockchain wallet. Users could create a web-based wallet in the ShapeShift crypto trading platform in seconds, including hardware wallet support.
“ShapeShift is committed to a borderless, decentralized financial future, and integrating this new wallet means that we can make our vision more accessible,” said ShapeShift Founder and CEO, Erik Voorhees. “With Portis, we can offer ShapeShift without hardware for the first time, providing the best way to easily hold, trade and track your crypto, all without giving up your control to a third party.”
What is the FOX Token?
The FOX token is a loyalty token used by ShapeShift Members. The first 100,000 ShapeShfit Members received 100 FOX as a gift. Members earn FOX whenever they do a trade, which is tracked in a Member’s account. The token cannot be withdrawn or moved (yet). There are a total of 1,000,001,337 FOX tokens, and will never be more, ShapeShift writes.
ShapeShift plans to distribtue FOX tokens so users can send and receive their FOX as an ERC token on the Ethereum network. FOX token holders will then receive better prices on ShapeShift Platform trades.
The more FOX possessed by a Member, the more discounted exchange volume that Member can do per month and the higher their transaction limits.
ShapeShift acknowledged that ShapeShift Membership represented a pivot away from its previous designation as “the exchange without accounts.” The company cited customer demand, its interest in exploring the phenomenon of tokenization, and the need to require customers to hand over personal private information. Membership is a requirement.
“Yes, that last detail sucks,” wrote Voorhees. “We would prefer if the collection of personal information was not a mandatory element. We still firmly believe that individuals, regardless of their race, religion, or nationality, deserve the right to financial privacy, just as they deserve the right to privacy in their thoughts, in their relationships, and in their communications. Such privacy is a foundational element of a civil and just society, and should be defended by all good people.”