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Peer-to-peer Bitcoin marketplace Paxful has announced that it will shut down, directing users to retrieve their funds from its platform.
“This will probably come as a shock to many,” Paxful co-founder and CEO Ray Youssef wrote in a blog post. “All customer funds are accounted for. Please withdraw them and, if you can, self-custody.”
— calle ⚡️ (@callebtc) April 4, 2023
The blog post cited "key staff departures" and "regulatory challenges for the industry," but Youssef said during a Twitter space on Tuesday that the decision to close the platform was also influenced by a lawsuit brought by a Paxful co-founder who is suing Paxful and Youssef after being “kicked out of the company” more than a year ago.
“My co-founder sued the company and sued me,” Youssef said. “I have a lawsuit over my head right now.”
Though he did not name the plaintiff explicitly, Youssef is likely referring to co-founder Artur Schaback, who filed a lawsuit in Delaware Chancery Court against Youssef in January, according to a court docket hosted on CourtConnect.
Schaback could not be reached for comment by Decrypt.
“Paxful is a nominal defendant in the litigation, so we cannot share much around the case,” a Paxful spokesperson told Decrypt, also declining to identify the plaintiff. “But I can confirm that Artur Schaback is a co-founder and current board member of Paxful.”
The announcement of Paxful’s closure comes just days after Youssef promised to make Paxful Earn customers whole. The service had allowed Paxful customers to earn a yield on Bitcoin through a partnership with Celsius, a prominent crypto lender that filed for bankruptcy last July.
The Paxful spokesperson told Decrypt that, despite the company’s impending closure, Paxful’s wallet is operational, and “users can get their funds out safely.”
Paxful database is a bit overloaded now as everyone is withdrawing funds. It is making transfers slow. I promise funds r safe and they will clear soon
— Ray Youssef (@raypaxful) April 4, 2023
Youssef claimed that Paxful’s senior staff were largely driven away from the company because of actions taken by the unnamed co-founder’s legal team. Youssef added that the co-founder refused to pay some of Paxful’s employees.
“His litigation team was really nasty,” he said. “They drove away all of our senior-level staff who just couldn't deal with this guy anymore.”
By this past Friday, it had gotten to the point where there were no engineers, compliance team members, or security personnel left working at the company, Youssef said. Ultimately, he said he decided at that point to shut the company down due to security concerns.
Youssef claimed he subsequently hired an engineering team to assume control of Paxful’s digital wallet—presumably still being used for safekeeping funds. He said it was the right thing to do, even though it conflicted with a court order that he’s received.
“I've managed over the weekend to get an engineering team to secure everything,” he said. “I had to make an ethical decision.”
Paxful was originally founded in 2015, and it is the latest firm to succumb in the midst of crypto winter. The company is headquartered in New York and has offices in Estonia, the Philippines, and Russia, according to a press release.
At one point, the company allowed customers to trade Bitcoin and Ethereum—the two largest cryptocurrencies by market capitalization—along with the leading stablecoin Tether. But the company dropped support for Ethereum last December.
Youssef said that Paxful was ultimately successful in the sense that it fostered Bitcoin adoption in West Africa and other areas of the Global South. According to Coin Dance, trading volume on Paxful totaled around $35 million in the past week, with users based in countries like Argentina, Kenya, and India.