I want to bring an important issue to the community’s attention and discuss possible solutions to address the challenges it presents. Binance is under increased regulatory pressure and is considering delisting certain privacy coins, including Zcash, in the coming months unless certain measures are taken to enhance the transparency of transactions and ensure compliance with evolving regulatory standards.
A representative from Binance’s listing team recently approached the Zcash core teams about a way to prevent users from sending ZEC from a shielded address to a transparent address on the Binance exchange.Their concern is that they lack the ability to determine the origin of these funds, such as whether they originate from an OFAC-sanctioned country or individual. The representative inquired about the possibility of blocking z-addresses from sending to their deposit t-addresses or rejecting those deposits and returning them to the sender. Currently, the protocol does not have a mechanism to prevent a user from transferring funds from a shielded pool to a transparent address, and there is no method in place to determine the sender’s source address when it is sent from a shielded pool.
The broader context involves regulatory and compliance concerns related to transaction monitoring, particularly in light of MiCA regulations. To address these concerns, regulated exchanges like Gemini often employ Enhanced Due Diligence measures to verify the source of a user’s funds. However, the Binance representative emphasized that implementing such measures is operationally burdensome and costly, and therefore not a long-term solution. Additionally, the Binance representative expressed a concern that other non-European jurisdictions are likely to adopt regulations similar to MiCA in the future. As a result, if Zcash is delisted from Binance, the delisting will be global and extend beyond jurisdictions under the scope of MiCA.
One potential solution Binance suggested is developing an “exchange-only” address type that restricts transfers to and from a separate transparent pool. While this is technically feasible, there are two notable challenges. First, it is not clear whether the core engineering teams have the capacity and resources to undertake this initiative given their current focus on internal organizational priorities. Second, the implementation of an “exchange-only” address type depends on the collective consensus of the Zcash community, and the community’s willingness to support a network upgrade that incorporates this functionality is uncertain.
Firo is facing a similar risk of delisting with Binance and has already taken proactive steps a to create an “exchange-only” address type, which is expected to be deployed later this year. You can read Firo’s discussion about this issue here. Firo’s situation is somewhat different than Zcash. Most notably, according to CoinGecko , Binance accounts for more than 50% of Firo’s trading volume, and maintaining a partnership is crucial to ensure the ongoing accessibility of the Firo token. For Zcash, Binance represents approximately 15% of current trading volume. Firo also has a much smaller and less decentralized community than Zcash, which makes it easier to implement the change to their protocol.
While a delisting is not imminent and we have several months to find a solution, this issue demands immediate consideration and thoughtful discussion within the community. It is not a matter to be taken lightly, as the potential delisting carries the risk of slowing user adoption and adversely affecting the price of ZEC. There is also the possibility of a ripple effect where other exchanges consider similar actions in the future. However, it is worth noting that both Coinbase and Gemini have recently reaffirmed their commitment to supporting Zcash. Nevertheless, engaging in this discussion now and finding solutions will help us get ahead of potential challenges and work towards ensuring the long-term accessibility of Zcash.
To make progress on this issue, please use this thread to discuss the proposed “exchange-only” address type and seriously consider the implications of implementing this solution or the potential consequences if it is not implemented. Furthermore, please explore other technically feasible solutions that address Binance’s concerns. I also encourage you to share your thoughts on the value and necessity of maintaining a partnership with Binance. Your comments and feedback are essential to resolving this issue in a timely and effective manner.
 Please note that CoinGecko’s reported trading volumes may be subject to inaccuracies, as some exchanges may inflate their figures due to various factors such as wash trading, potentially leading to understated percentages in this context. In other words, with regard to Zcash, Binance’s percentage of total trading volume may be significantly greater than 15%.