- Crypto.com might have transferred from exchanges to cold wallet shortly before asset declaration
- Research experts claim exchange could be trading with customer funds and also be in debt
Unpleasant events rocked the crypto ecosystem lately, which subsequently led exchanges to release their proof-of-reserves, such as Crypto.com. As of 11 November, Kris Marszalek, the CEO of Crypto.com, tweeted that the company’s reserves audit was in progress.
However, the exchange later published details of assets Marszalek claimed were in cold wallets. After this revelation, new reports emerged that Crypto.com might have “rushed” to move its funds from exchanges after Binance CEO, CZ, recommended the practice.
“You need to come out clean”
Crypto investigator and contributor to the Synthetix [SNX] protocol, Adam Cochran, notified the community of an Etherscan transaction that might have put Crypto.com in a bad light. According to Cochran, the exchange wallet setup showed signs of distrust.
I’m going to need an explainer on the Crypto .com cold wallet set up?
Decided to poke at wallet 4 on Etherscan and here is what I saw: pic.twitter.com/hBvD1doFbI
— Adam Cochran (adamscochran.eth) (@adamscochran) November 13, 2022
Crypto.com seemed to have held some assets that it listed on several exchanges. According to the Etherscan transaction, Crypto.com sent 1500 Ethereum [ETH] out of its cold wallet three days ago. The same cold wallet had also transferred assets to Deribit, Gate.io, Binance, and Huobi around the same period.
The suspicion was rooted in the exchange’s claim that its users’ assets were safe in cold wallets. Meanwhile, inflows were passing through deposit contract addresses that were created less than three months ago.
Interestingly, Cochran was not the only one who alerted the crypto community of the transactions. Another researcher at GMB Ventures, Churchupcontrol, a blockchain informational portal, might be using customer funds for arbitrage.
According to him, the exchange had taken advantage of price differences on Binance and Gate.io to make ‘risk-free’ money. He also added proof that Crypto.com recently engaged in the act as close as ten days back.
This implied that the exchange quickly arranged its public asset declaration to save face. Hence, it was also likely that customer funds were at risk of exploitation.
Loans, accidents, and the potential to follow suit
In addition, Churchupcontrol claimed that the FTX collapse led to Crypto.com making rash decisions. You would recall that its proof-of-reserves showed no debt, according to Nansen. However, panic, per the FTX scrutiny, led to a change in the details of its margin table.
This also included taking a loan profit. Hence, the researcher noted that the exchange might own fewer assets than it claimed to have. It was also recently that Crypto.com claimed accidental transfers to Gate.io.
On November 8, when FTX’s bankruptcy became a reality in earnest, the margin table was changed quickly. They have a maximum loan of 100,000 AXS per person. If you check your wallet, you’ll see that they didn’t have that much AXS before. pic.twitter.com/Rr482Mu6I7
— chuchuprotocol.eth l GMB VENTURES (@chuchuprotocol) November 13, 2022
At press time, it seemed that CZ had gotten wind of the information. While reacting to it, the Binance CEO said that it was a clear sign of problems if exchanges had to move funds before declaring assets. Meanwhile, neither the exchange’s official account nor the CEO had reacted to the development.
If an exchange have to move large amounts of crypto before or after they demonstrate their wallet addresses, it is a clear sign of problems. Stay away. Stay #SAFU. 🙏
— CZ 🔶 Binance (@cz_binance) November 13, 2022
Crypto.com’s Exposure To FTX Less Than $10 Million Says CEO — CRO Token Not Used As Collateral
According to the CEO of Crypto.com, Kris Marszalek, his firm had recovered much of the $1 billion that had been sent to FTX when the crypto exchange collapsed. However, he acknowledged that at the time of FTX’s collapse, Crypto.com’s exposure to the crypto platform was below $10 million. Marszalek also claimed that Crypto.com has never used its crypto token as collateral.
Crypto.com’s Business Model
Kris Marszalek, the co-founder and CEO of Crypto.com, recently told his followers that when FTX collapsed, much of the $1 billion that was sent to the now-defunct exchange platform had been recovered. According to the CEO, Crypto.com’s exposure to FTX was under $10 million when the latter was forced to file for bankruptcy.
Responding to speculation that Crypto.com may be the next crypto exchange to face an FTX-style user exodus, Marszalek insisted on Nov. 14 that it has been business as usual at his firm. Speaking during an ask me anything (AMA) session arranged by the crypto exchange, Marszalek also reiterated that his firm’s primary focus is serving its 70 million plus clients who largely buy and hold crypto assets.
The Crypto.com boss also claimed that his firm’s business model is different from the one used by FTX.
Surging Transactions and Withdrawal Pause Rumors
As reported by Bitcoin.com News, FTX’s apparent practice of misappropriating customers’ funds eventually led to its downfall. Following FTX’s demise, rumors emerged suggesting Crypto.com, which recently admitted to sending digital assets worth over $400 million to Gate.io by mistake, might be the next crypto exchange to fall.
In addition, the recent surge in the number of transactions as well as reports alleging that Crypto.com had paused withdrawals seemed to lend credence to the rumors. However, in his response to reports suggesting the exchange had stopped withdrawals, Marszalek said:
This is absolutely not true, we are operating as usual. There is a heightened level of trading activity which means higher trading volumes which mean more revenues for us.
While Marszalek admitted that the exchange is grappling with a backlog of customer service tickets, he nonetheless emphasized that steps to rectify the situation were being taken. Concerning the alleged use of Crypto.com’s token CRO as collateral, the CEO said:
We have never used CRO as collateral for a single loan in our history. Not even once.
Marszalek added that Crypto.com is already running a simple business that generates decent revenues and therefore has no interest in using its token to generate more income.
What are your thoughts on this story? Let us know what you think in the comments section below.
Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.
Image Credits: Shutterstock, Pixabay, Wiki Commons, FellowNeko / Shutterstock.com
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Huobi, Gate.io, Crypto.com see spikes in flow to FTX
Huobi, Gate.io, Crypto.com see spikes in flow to FTX Andjela Radmilac · 41 mins ago · 2 min read
Data analyzed by CryptoSlate showed sharp spikes in interexchange flows to FTX, with the most notable one being from Huobi.
2 min read
Updated: November 14, 2022 at 7:04 pm
Cover art/illustration via CryptoSlate
The full consequences of the FTX fallout are still unknown. As FTX, its U.S. subsidiary, and Alameda Research all filed for bankruptcy protection, it could be months before the public gets to see what happened in Sam Bankman-Fried’s crumbled trading empire.
Until that happens, what we’re left with is on-chain data that can point us to where the money goes.
Centralized exchanges have seen huge oscillations in their Bitcoin balances in September and October. These oscillations included jumps and drops ranging from 10,000 BTC to 40,000 BTC, leaving huge dents in the total exchange balances across the market.
While the sharp drop in Bitcoin balances we’ve seen in the past week can be attributed to the FTX fallout, three exchanges stand out in particular — Huobi, Gate.io, and Crypto.com.
Looking at the Bitcoin balances on all three exchanges shows quite a bit of unusual activity in the month preceding FTX’s downfall.
Alameda’s reckless trading strategies revealed last week prompted many to investigate whether the trading company used exchanges other than FTX.
Data analyzed by CryptoSlate showed sharp spikes in interexchange flows to FTX, with the most notable one being from Huobi. at the beginning of October, Bitcoin flows from the exchange to FTX tripled. Flows from Gate.io also saw a vertical spike in October that continued into November.
Similar spikes were seen in January 2021 and at the beginning of July 2022 — the former following the drop from the ATH reached in November 2021, and the latter coinciding with the Luna collapse. The spikes seen last month dwarf previous ones both in size and severity.
The FTX aftermath: Exchanges shoulder this shared responsibility of…
Singapore-based crypto exchange Crypto.com published its proof of reserve on 11 November and Shiba Inu [SHIB] took center stage. The move to publish the proof of reserve was in line with an industry-wide effort to enhance transparency. This was following the bankruptcy of the world’s second largest exchange, FTX.
Crypto.com shared data related to its holdings with blockchain analytics firm Nansen, who, in turn, came up with a dashboard that tracked the exchange’s addresses.
20% holdings in SHIB
Popular meme coin Shiba Inu took the spotlight as Crypto.com released its holdings. The memecoin made up for 20% of Crypto.com’s holdings, representing $542 million of the total assets. Bitcoin [BTC] was the leading crypto in this dashboard, accounting for 31.86% of the exchange’s holdings,. It roughly translated to a little over $800 million. Ethereum [ETH] stood at rank #3, accounting for 17.18% of the dashboard.
Stablecoins, including USDT and USDC, made up for almost 11% of the holdings. The rest were spread out among several other cryptocurrencies, including MATIC, MANA, and CHZ.
Crypto.com CEO Kris Marszalek stated on Twitter that this data only represented a portion of the exchange’s reserves. A comprehensive audit was also underway and a full report was expected within the next couple of weeks.
While the Proof of Reserves audit preparation is underway, we are sharing our cold wallet addresses for some of the top assets on our platform.
This represents only a portion of our reserves: about 53,024 BTC, 391,564 ETH, and combined with other assets for a total of ~US$ 3.0b
— Kris | Crypto.com (@kris) November 11, 2022
Furthermore, investors had voiced their concerns about such a considerable portion of the platform’s reserves being held as meme coins. However, the company clarified that the holdings reflected customer deposits as well.
Exchanges face pressure to publish proof of reserves
In the aftermath of FTX’s collapse, exchanges operating in the crypto industry have had to face the heat from traders and investors. These individual are urging for greater transparency in the crypto industry.
Furthermore, Bitfinex recently shared their proof of reserves on Github. It published a list of over 130 addresses of both hot and cold wallets. Binance published similar details on 10 November, outlining over $70 billion worth of crypto holdings.
Several other exchanges, including KuCoin, Huobi Global, and Deribit, have indicated that they would support the ongoing move and publish their proof of reserves soon.
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