State of Ukraine’s blockchain industry a year after Russia’s invasion

Following the anniversary of Russia’s invasion of Ukraine war, CryptoSlate takes an in-depth look at the state of Ukraine’s blockchain industry.

• Between February 23, 2022 – February 23, 2023, $187 million in crypto donations were collected in support of Ukrainian groups, according to analysis by Crystal Blockchain.
• About a third, or about $62 million, came from a group called Aid for Ukraine, a blockchain consortium consisting of Alex Bornyakov, the current deputy minister of digital transformation of Ukraine, Michael Chobanian, founder of the Ukrainian crypto exchange, Kuna .io, and Sergey Vasylchuck, founder of the stake platform Everstake.

In an exclusive interview with CryptoSlate, Alex Bornyakov spoke about the many challenges facing Ukraine’s blockchain industry in the wake of Russia’s invasion and how crypto is being used to support the country’s defense efforts.

“At the very beginning of the war, there were dozens of technology and IT companies donating not only money, but teams of developers came forward with many ideas on how to support Ukraine.”

Bornyakov’s role as deputy minister for digital transformation involves working between government and business, with a focus on the IT and blockchain sectors.

“I am in contact with many entrepreneurs and funds from one side companies, entrepreneurs, owners and from the other side, policy making. I am also responsible for a project called Electronic Residency, a program that allows non-citizens of Ukraine to open a bank account and also run crypto-related businesses.

Bornyakov added that he has also advised the Ukrainian government to introduce a CBDC, which he believes will be crucial in supporting Ukraine’s efforts to become fully digital.

“The goal of a CBDC is to increase the transparency of money flows and have programmable money, so we can get rid of bureaucracy when government money is dispersed,” Bornyakov said.

“We have a new law that President Zelenskyy signed in April 2022 that makes changes to our tax code for a CBDC to work. So if you’re a business or if you want to go virtual as a service provider, now you can’t because there must be changes in the tax rules and laws in Ukraine. Now we are working with the National Security Commission and the National Bank of Ukraine to complete this law. Our hope is that not only people but also companies can use crypto and other funds for their business . Regarding a CBDC, we recently concluded a pilot project with a number of Ukrainian banks, the results of which were positive.”

Ukraine’s leading exchange Kuna is under threat

However, according to Michael Chobanian, founder of Ukrainian crypto exchange Kuna.io, the newly proposed legislation does not go far enough to support fiat to crypto onramps, which in the long run could hurt the Ukrainian crypto exchange he founded in 2014.

During the first days of the war, Kuna processed around $5 million in daily transactions, purely on the fiat-to-crypto side of the exchange. It later stabilized at around $1.5 million per day, Chobanian said, adding that the main pairs are USDT/UAH and BTC/UAH.

In March 2022, a partnership between newly defunct crypto exchange FTX and Everstake supported the conversion of crypto donations made via Aid for Ukraine into fiat deposits at the National Bank of Ukraine, with FTX handling the SWIFT portion of the transaction.

But with the recently proposed changes at a political level, Chobanian worries that exchanges like Kuna could suffer as the proposed legislation does not allow local exchanges to operate.

“The government is still very centralized and inefficient,” Chobanian told CryptoSlate, adding that he believes the current legislation in Ukraine will make it more difficult for fiat-to-crypto exchanges.

Many Ukrainians now use small cash-to-fiat crypto kiosks, small over-the-counter exchanges that charge markups of as much as 1.5%, three times the industry standard of 0.5%. However, Chobanian postulates that as exchanges become more regulated around the world, some will eventually begin to merge with banks.

“I predict there will be a merger between the traditional banks and the exchanges,” he said. “So either exchanges will acquire banks, or banks will acquire software and existing exchanges like Binance and Kraken to merge into one product. Ultimately, they will be regulated in the same way,” Chobabian said.

He added that he has plans to introduce the Kuna to the European market, although he declined to give an exact entry date.

With so many changes looming and still no end to the war in sight, it seems that tension is beginning to emerge from Ukraine’s blockchain industry, which is adapting not only to the war effort from within, but also to the rapidly changing external environment in which crypto is increasingly viewed by regulators and military and intelligence agencies as a non-state adversary, or at least the potential threat of one.

With over $60 million donated to Ukraine in crypto through Aid for Ukraine since the start of the war and changes likely to come this year regulating the issuance of a CBDC, crypto and blockchain will likely continue to play some role in Ukraine’s future, even if it the role remains much to be seen.