Cryptocurrency exchange ShapeShift submitted a settlement offer to the United States Securities and Exchange Commission, accepting the agency’s order to cease and desist and agreeing to pay a penalty. The exchange had ceased the operations in question in 2021 when the exchange converted into a decentralized autonomous organization (DAO).

According to SEC allegations, ShapeShift operated an online platform structured as a crypto “vending machine” from 2014 to January 2021. ShapeShift served as the “market maker” and counterparty for the trades, enabling it to generate revenue on the price spread on the trades. According to the SEC order:

“ShapeShift purchased the crypto asset that the customer sought to sell and sold to the customer the crypto asset that the customer sought to buy.”

ShapeShift was incorporated in Switzerland and headquartered in Colorado for several years. At its peak, it offered at least 79 assets, some of which the SEC defined as securities under the Securities Exchange Act of 1934 and the Howey test. ShapeShift agreed to pay a $275,000 penalty for its actions.

“ShapeShift does not currently have any revenue or full-time employees,” the SEC order stated. ShapeShift announced the dissolution of its corporate entity in July 2021. It simultaneously made its operations open-source and decentralized.

ShapeShift created the FOX token in November 2019 and allowed users holding FOX to trade without fees. In 2021, it made FOX a governance token and promised to hold the biggest airdrop in history with it.

ShapeShift only acknowledged in passing that it was subject to regulatory pressure. ShapeShift founder Erik Vorhees wrote in a blog at the time that the regulatory climate had evolved, and:

“We outsourced the regulated activity to an immutable decentralized protocol.”

The ShapeShift DAO continues to operate at the same web address as the dissolved exchange, and the FOX token continues to be traded. FOX hit a peak price of $1.68 in March 2021 and currently trades for $0.09 with a market cap of $38.9 million.

Pro-crypto SEC commissioners Hester Peirce and Mark Uyeda released a joint statement on the ShapeShift settlement with the SEC. They wrote:

“Notably, the Commission does not allege any harm — ShapeShift and its customers voluntarily transacted and the Order nowhere alleges that ShapeShift defrauded its customers.”

Peirce and Uyeda created an ironic but “by no means hypothetical” dialog between Future ShapeShift and the SEC to illustrate the ambiguity of the SEC’s regulatory stance, which they said was untenable.