What it was
The original ShapeShift did one thing. You sent it one coin, it sent back another, and there was no account, no login and no deposit balance. The Securities and Exchange Commission's 2024 order describes the mechanism precisely, because the mechanism is what the case turned on: ShapeShift "did not arrange exchanges between customers, but instead effected exchanges from its own inventory, serving as the customer's counterparty in every transaction". It made its money on the spread. The order records the company as incorporated in Switzerland, founded on 1 July 2014, operating from Denver, Colorado, with ShapeShift.io launched on 1 August 2014, and says that at its peak the platform handled as many as 20,000 transactions a day across at least 79 assets.
So it was custodial in the narrow sense that mattered: your coins went to ShapeShift's wallet and ShapeShift's coins came back. That is why it could be regulated as a dealer, and it is what changed.
What it is now
In January 2021 the company announced it would stop being the counterparty. On 14 July 2021 it announced it was dismantling the company itself, distributing 340 million FOX tokens to over a million past users and holders in what the announcement called the largest crypto token airdrop to that point, and moving governance to those tokens. Erik Voorhees, its founder and chief executive, put it as: "It has become clear that open, immutable finance requires open, immutable organizations." The plan stated was to "dissolve all corporate structure, open-source its entire code base and technology, and imbue the FOX Token with governance rights".
That is roughly where it landed. The front end is open source on GitHub, proposals are voted by FOX holders, and the site now describes itself as "a community-owned, private, non-custodial, multichain platform". Trades route to outside liquidity venues rather than to a ShapeShift inventory. What was one company's order book is now an interface in front of other people's.
On the record
On 5 March 2024 the SEC instituted settled cease-and-desist proceedings against ShapeShift AG, administrative proceeding file 3-21891, finding that some of the assets it dealt in were securities and that by carrying inventory and quoting both sides it met the Exchange Act definition of a dealer without registering, in violation of Section 15(a). ShapeShift consented to the order "without admitting or denying the findings" and paid a civil penalty of $275,000. The order states that it "applies only to ShapeShift's operations as a dealer prior to early 2021, and does not address any other conduct", and records that the company then had no revenue and no full-time employees. Nothing was adjudicated and no customer loss is recorded, so the matter is set down here rather than badged.