Withdrawals reportedly rose and Crypto.com’s Cronos token fell in price on the news.
Sending $400 million worth of Ether to the wrong wallet is not the best way to build consumer confidence when trust in cryptocurrency exchanges is at a post-FTX low. Withdrawals reportedly rose and Crypto.com’s Cronos token fell.
News of Crypto.com’s $400 million “oopsie” couldn’t have come at a worse time.
While it happened last month, news only broke over the weekend that the high-profile exchange accidentally sent $400 million worth of Ether to competitor Gate.io after mixing up one of its own corporate account wallets on that platform with a new Crypto.com cold wallet.
Coming as trust in centralized exchanges has been badly damaged by the collapse into bankruptcy of FTX and FTX US — as shown by the record number of crypto owners finally heeding long-standing industry advice to self-custody their funds in private cold wallets — the error “generated so much FUD & speculation on Twitter,” according to CEO Kris Marszalek, that he was forced to explain what happened.
In brief, he said in a Nov. 12 Twitter thread that the 320,000 ETH were sent to a whitelisted address in its custody system — just the wrong one:
“Fund movements from Crypto.com custody systems are only possible between approved and whitelisted addresses attached to our cold wallets, our hot wallets and our corporate accounts at 3rd party exchanges […] In this particular case the whitelisted address belonged to one of our corporate accounts in a 3rd party exchange instead of our cold wallet.”
Marszalek also stated that the exchange has “strengthened our process and systems to better manage these internal transfers.”
Of course, by that time, Crypto.com’s Cronos (CRO) token had tanked some 30% — on top of an even steeper decline last week as FTX imploded into bankruptcy.
At the same time, withdrawals climbed, the Wall Street Journal wrote, citing blockchain activity showing $53 million was pulled by customers. That said, there have been signs of a broader move towards self-custody during the past week, with Glassnode saying Sunday that 106,000 Bitcoins have been off-ramped from centralized exchanges “[f]ollowing the collapse of FTX.”
Nor was it the first time in recent history that Crypto.com sent out an erroneous transaction. In August, Decrypt reported that it sent an Australian woman who requested a $100 refund more than $10 million, and was suing to recover it.
Timing Is Everything
Another part of the problem is that news broke just as Crypto.com had joined the post-FTX stampede of exchanges seeking to put out audited proof-of-reserves statements as quickly as possible.
A day earlier, Marszalek had published a list of Crypto.com’s major cold wallet addresses “[w]hile the Proof of Reserves audit preparation is underway,” noting in the process that the exchange had a little more than 391,000 ETH in its $2.47 billion in assets — making clear that it had misplaced more than 80% of its ether.
Nor did Binance CEO Changepeng “CZ” Zhao help by tweeting a somewhat vague warning Sunday that, while not mentioning Crypto.com, has been seen as referring to it:
“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. 🙏”
Reuters quoted fintech consultant Zennon Kapron as saying “One of the theories floating around is that the exchanges are moving crypto around to shore up their balances and make everything look good even when it's anything but.”
Beyond that, part of Crypto.com’s transparency effort was a dashboard it put together with blockchain analytics firm Nansen.ai that raised eyebrows when it revealed that more than 21% of its assets were in the shiba inu (SHIB) meme token — roughly a third more than it has in ether — raising eyebrows and Twitter chatter.
In that case, a Crypto.com spokesperson told Blockworks that the “reason our Proof of Reserves include Shiba is because we hold customers balances 1:1. Thus, our Proof of Reserves are dictated by our customer holdings.”
A year ago, Crypto.com raised eyebrows a lot higher when it announced a $700 million, 20-year contract for naming rights to the L.A. Lakers stadium, ran a heavily criticized ad featuring Matt Damon, and advertised on the Super Bowl.
In a company-hosted AMA session on its YouTube Channel Sunday, CoinDesk reported Marszalek said Crypto.com was cash flow positive, had no more than $10 million exposure to FTX, and had never used its Cronos token as loan collateral the way FTX did FTT.
Binance is the parent company of CoinMarketCap.
