After the shocking collapse of FTX, other centralized crypto exchanges are under the microscope, and Crypto.com customers are concerned after CEO Kris Marszalek acknowledged that his exchange accidentally sent 320,000 ETH, around $400 million at the time, to a public address registered at a competitor exchange.
Blockchain records on Etherscan show that on October 21, Crypto.com sent the sum, around 80% of its total ETH reserves, to rival exchange Gate.io—just before Gate.io provided “proof of reserves” to its users on October 28 as part of a new push for transparency after the FTX crisis.
Gate.io subsequently returned the slightly diminished sum of 285,000 ETH, around $456 million as a result of a minor ETH surge, on October 29. Crypto.com released its own proof of reserves on November 12.
“It was supposed to be a move to a new cold storage address, but was sent to a whitelisted external exchange address,” Marszalek tweeted on Saturday. “We worked with [the] Gate team and the funds were subsequently returned to our cold storage. New process and features were implemented to prevent this from reoccurring.”
Oopsied 80% of your eth to a diff exchange? Was the return of 285k delta the fee for the mistake?
— Ledger 🇺🇸 Prometheus of the Plebs (@ledgerstatus) November 13, 2022
Marszalek added that all of the funds have since been returned and that Crypto.com’s dollar balance on Gate is in the single-digit millions.
In a thread blasting the resulting speculation as “FUD,” Marszalek shared a snapshot from Gate showing its reserves from October 19 without the Crypto.com funds. Gate also posted on its blog late on Saturday night a “clarification” about its “assistance to Crypto.com to retrieve 320k ETH mistaken transfer.”
Crypto.com and Gate.io did not immediately respond to requests from Decrypt for further comment.
The baffling transaction comes days after one of the top five exchanges in the world suffered a catastrophic bank run and didn’t have the liquidity to cover, leading to the complete unraveling of Sam Bankman-Fried’s empire and reputation.
Like FTX, Crypto.com markets itself as a regulated, trustworthy crypto business—claims that many now doubt.
Binance CEO Changpeng Zhao, who triggered the FTX selloff one week ago when he tweeted that his company would liquidate its stash of FTX’s token, quickly pounced on the Crypto.com fiasco.
“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,” he tweeted. “Stay away.”
Crypto.com’s proof of reserves, released November 12, was already the subject of some bemusement. The document showed that some 20 percent of the exchange’s holdings were denominated in SHIB, the joke crypto based on another joke crypto, DOGE.
FTX spent hundreds of millions of dollars on sports sponsorship deals that are rapidly dissolving in the wake of its insolvency; the Miami Heat announced on Friday it will remove the FTX name and seek a new stadium naming partner. Crypto.com has also spent big in sports: its $700 million arena naming rights deal with the Los Angeles Lakers dwarfs the FTX/Heat deal, and the exchange is a sponsor of the 2022 FIFA World Cup in Qatar.
