Co-founders of the failed crypto hedge fund Three Arrows Capital, Su Zhu and Kyle Davies, have encountered new difficulties in Dubai. They are accused of operating and promoting their new digital-asset platform, Open Exchange (OPNX), without the necessary local license.
Regulatory scrutiny from Dubai’s VARA
The Virtual Assets Regulatory Authority (VARA) in Dubai has issued a written notice to Zhu, Davies, and two other OPNX executives.
According to the regulator, OPNX engaged in marketing activities in Dubai and the UAE through social media platforms without the appropriate restrictions in place. VARA first discovered OPNX’s marketing efforts in February, even before the platform’s launch.
VARA had previously issued two cease-and-desist notices in February and March. However, the regulator stated that it did not receive any response from OPNX, leading to an “investor and marketplace alert” being issued against the exchange just days after its April 4 launch.
Zhu and Davies’ previous venture, Three Arrows Capital, faced a downfall that led to an ongoing investigation. The crypto community has been baffled by their continuous involvement in fundraising and promoting a new venture like OPNX while they are still under scrutiny for their previous business’s failure.
OPNX’s association with Three Arrows Capital founders
The association of OPNX with the former founders of Three Arrows Capital has been a controversial topic in the crypto industry. Despite being under investigation for the downfall of their previous venture, Zhu and Davies have been actively promoting and raising funds for OPNX. However, they have recently distanced themselves from the platform, stating that they are not involved in its day-to-day operations.
Both Zhu and Davies explained their relationship with OPNX by emphasizing that while they contributed initial ideas to the project, they are not responsible for its daily management. Leslie Lamb, the CEO of OPNX, is in charge of the platform, and Zhu and Davies claim to have minimal involvement.
The connection to the troubled Three Arrows Capital founders has negatively impacted OPNX’s fundraising efforts. CEO Leslie Lamb criticized several venture capital firms on Twitter after some reportedly backed out of the project.
Previously, OPNX claimed to have backing from companies such as AppWorks, Susquehanna International Group, DRW Venture Capital, MIAX Group, China Merchants Bank International, and Token Bay Capital.
The Dubai crypto scene: A balancing act
The regulatory action against OPNX highlights Dubai’s increasingly strict approach to crypto, even as the city aims to establish itself as an industry hub.
This comes amid wider efforts by the UAE to remove itself from the Financial Action Task Force’s “grey list” of jurisdictions with insufficient efforts to uncover illicit funds.
Dubai is walking a tightrope, trying to maintain a regulatory balance that allows it to foster a vibrant crypto ecosystem while also ensuring compliance with international standards.
As a result, the emirate is actively cracking down on entities that do not adhere to its regulations and licensing requirements.
The ongoing saga of the Three Arrows Capital founders and OPNX serves as a cautionary tale for the broader crypto community. It highlights the importance of regulatory compliance and the potential consequences for both businesses and investors when operating in the rapidly evolving and highly scrutinized crypto landscape.