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Crypto fund for Ukraine: How cryptocurrencies are funding Ukraine’s fight against Russia

Just four days after its calls for donations began, Ukraine’s official wallets attracted over $10.2 million (9.2 million euros). Since then, close to $100 million in cryptocurrency has been raised

April 01, 2022 / 12:34 PM IST
(Representative Image)

(Representative Image)

The Ukrainian government has gone all out soliciting aid from the cryptocurrency community and the efforts have borne fruit. Since February 26 when officials began tweeting calls for donations, the country has received over $71.66 million of its $200-million target as on March 31.

Just four days after its calls for donations began, Ukraine’s official wallets (then two, which were later merged) attracted more than $10.2 million (9.2 million euros). Since then, close to $100 million in cryptocurrency has been raised and Michael Chobanian, founder of Ukrainian crypto exchange Kuna, said his platform accounts for 60 percent of all donations.

As of mid-March, Ukraine had spent around $34 million of the funds  either as crypto tokens where accepted or converting it to traditional currency, Alex Bornyakov, the country’s deputy minister for digital transformation, told The Associated Press.

The government has also taken steps to formally welcome crypto into its policy. In March, Ukraine’s President Volodymyr Zelenskyy also signed a cryptocurrency regulatory framework into law.

Notably, data from the US’ Congressional Research Service report (dated January) shows that crypto donations so far equal close to 1 percent of Ukraine’s annual pre-war defence budget.

How do the donations happen?

The ministry of digital transformation of Ukraine has set up a website ‘Aid for Ukraine’ via which you can donate cryptocurrencies to the fundraising account of the National Bank of Ukraine. Funds will be used towards the nation’s humanitarian aid programmes and the armed forces, it claims.

“Don’t leave us alone with the enemy,” the website entreats, and donations have been pouring in.

The site also lists the cryptos acceptedBitcoin (BTC), Ethereum (ETH), Tether (USDT ERC-20), Tether (USDT TRC-20), Terra (LUNA), Solana (SOL), Polkadot (DOT), Cardano (ADA), Dogecoin (DOGE), Algorand (ALGO), Hedera (HBAR), Monero (XMR), ICON (ICX) and Casper (CSPR)].

A quick look through the website showed that the Ukrainian government is also accepting fiat donations (US, Australian and Canadian dollars, euros and pounds) via the platform.

“We are still collecting crypto. It is being spent on aid like daily rations and bulletproof vests and helmets,” Chobanian told AFP. He added that the majority of the donations were Bitcoin, Ethereum and Tether.

How does it work?

As per a statement on the website, the crypto community “does not want to stand aside and watch Ukrainians suffer from unprovoked aggression by the Russian Federation“.

“Everstake is a Ukraine-based company. We wanted to give the crypto community a viable option to efficiently stand with Ukraine, and thus launched our initiative dubbed Aid for Ukraine,” it said.

In a first for a crypto exchange directly cooperating with a public financial entity as conduit, FTX converts the crypto funds received on the platform into fiat and seeds the donations to the National Bank of Ukraine. FTX is a Bahamas-based exchange platform founded by US billionaire Sam Bankman-Fried.

AFP reported that the website also plans to add non-fungible tokens (NFTs) as part of donation options in the future.

What are the donations used for?

The website states that donations will be used “to support people in their fight for freedom”. It claims that all funds raised through this effort “will go directly towards aiding Ukrainians”.

“Ukraine is in the middle of a humanitarian disaster. Hundreds of children have died. Thousands of adults have died. The people will continue their fight for freedom, but they need more ammunition and necessities,” it adds.

Bornyakov during an online speech on ‘Digital Resistance: How Ukraine Is Leveraging Technology to Fight for Freedom’ noted that Kuna contributed 60 percent of the crypto funds with the remaining money coming from several other smaller funds, CoinDesk reported.

Plus and minus

Ukraine claims to have pioneered a new source of financial support. Bennett Tomlin, who hosts the podcast Crypto Critic’s Corner and investigates crypto scams, acknowledged the novelty, telling AP: “It is certainly a first. We have never seen a sovereign nation fund their defence efforts in crypto before. It does prove out a lot of the crypto argument.”

Overall, the speed with which cryptos can be accessed and utilised has been a boon for the Ukrainian war effort, officials told AP. However, after an initial surge, donations have tapered off. They hope to solicit more support.

There is also an argument to be made that crypto funds cannot be easily shut down or interrupted through border disturbances or network disruptions as there is no one entity in charge.

Ukrainian cryptocurrency attorney Artem Afian who was involved with drafting the legislation, said that the country’s move to formalise a crypto framework can make others see that “working with crypto can be official and can be transparent and well run”.

On the downside though, crypto scams are on the rise. Hilary Allen, a professor at American University’s law school, told AP that donors should be careful about the fine details including who will receive the crypto and who will convert it.

On the other hand, Russia is tapping cryptos to circumvent sanctions, European Central Bank head Christine Lagarde said on March 22. She did not give details but pointed to rising volumes of global transfer of roubles into cryptos. In March, Binance and CoinBase began limiting some of their services in Russia, but remain in the market nonetheless.

Afian also alerted to the possibility of “tainted assets” making their way to Ukraine’s donations. These would be assets gained through scams and criminal or illicit activity. He however noted, “Comparing the risks and benefits for Ukraine now—Ukraine is using every penny, every chance to support people, to support the army, so this is not a time when Ukraine can choose a lot.”

But, despite the risks, Chobanian is optimistic. “When we win the war, we will rebuild Ukraine using blockchain technology. All of us were helped by crypto,” he told AFP.

People behind the effort

The ‘Aid for Ukraine’ initiative is led by the ministry of digital transformation of Ukraine, crypto exchange FTX, and Ukrainian-based Everstake. It has also been verified on Twitter by Mykhailo Fedorov, the minister of digital transformation of Ukraine, and Sergey Vasylchuk, the founder of Everstake.

“We are buying so much stuff that is saving lives every single day and also are stopping the aggression, so it’s a beginning of the new world,” Chobanian told AP. He clarified that while he does not receive payment for his work, some of the funds are being converted through Kuna.

Michael Chobanian – A profile

Thirty-seven-year old Michael Chobanian is the founder of the first Bitcoin agency in Eastern Europe and the Commonwealth of Independent States (CIS) countries, as per his LinkedIn profile. He has experience in blockchain ecosystems since 2011.

Chobanian founded Kuna and Bitcoin Foundation Ukraine (BFU) in March 2014.

Kuna is the first Bitcoin agency in Ukraine and Eastern Europe. It is also a one of the founding bodies of BFU and has built a network of Bitcoin ATMs (BTM). BFU is a non-profit organisation, created with the mission to standardise, protect and promote Bitcoin in the CIS region.

In September 2014 the first Bitcoin embassy in the CIS countries was opened and through a successful initial coin offering (December, 2015) the first public Ukrainian exchange of crypto assets was launched.

In December, 2017, Chobanian and other like-minded professionals created the Blockchain Association of Ukraine (ABU).

In January 2018, at the World Economic Forum in Davos, he introduced the concept of Blockchain HUB (cross-border network of professional spaces for solving the urgent problems of the Fourth Industrial Revolution). The opening of the flagship Blockchain HUB in Kyiv took place in March, 2018.

He is also founder of the charity foundation for the development of social innovation CryptoRus.

He founded Xreserve, in October 2018. It is a UAX token, which is a stablecoin type cryptocurrency backed on a one-to-one reserve ratio to the Ukrainian currency hryvnia. The digital token exists on the Ethereum blockchain.

Jocelyn Fernandes
first published: Mar 31, 2022 04:56 pm