Crypto.com Under Investigation
The exchange platform Crypto.com is under investigation after sending $405 million to the wrong person, raising concerns among crypto watchers in the wake of competitor exchange FTX's bankruptcy filing on Friday.
Observers who closely examined the transaction theorised it was an attempt to inflate trading volume. The analyst who initially noticed the transaction was a Coinbase employee.
Before this Crypto.com investigation, the company made headlines when it sent $10.5 million by mistake instead of a $100 refund to a woman in Australia in December.
CEO of Crypto.com Kris Marszalek claimed on Twitter that the transaction was an accident. A company representative told Yahoo Finance that money was sent to Gate.io, another cryptocurrency exchange, when it should have gone to an offline cold storage wallet.
The spokesperson explained that the movement of funds from the Crypto.com custody system is only possible between approved and whitelisted addresses that are attached to its cold wallets, hot wallets (connected to the internet), and corporate accounts at third-party exchanges."
Nonetheless, the transaction triggered crypto investors, who drove Crypto.com's exchange token (CRO-USD) price down by 24% in the last 24 hours. Bitcoin (BTC-USD) also decreased by less than 2.5% over the same period, while ether (ETH-USD) dropped by 2.5%.
Exchanges publish "Proof of Reserves"
The Crypto.com investigation also follows a rush by several exchanges to publish their "Proof of Reserves," demonstrating that they are not using investor funds during the week following FTX's collapse.
On Thursday, Crypto.com released its Proof of Reserves in its wallets, claiming to have $3 billion in total customer assets. According to the exchange wallets tracked by blockchain analytics platform Nansen, the figure was $2.55 billion as of Saturday, a 15% drop.
Proof of Reserves has long been used by some cryptocurrency exchanges, including the Kraken exchange based in the US. However, depending on the frequency and amount of a company's disclosed balance sheet, the measure may still be insufficient.
According to CEO and co-founder of Chainlink Labs Sergey Nazarov, Proof of Reserves can prove solvency. It shows, he said, if the assets a company claims to have are available in real time.
Michael Anderson, a co-founder of the crypto venture capital firm Framework, said the mechanism is 'great', as long as there is proof of liabilities and assets.
However, he added: "It gives you a portion of the story."
Anderson continued: "It helps people know if a company is using its customer assets as collateral to borrow money."
Author: Priya Kumari
Priya is a passionate content writer and the co-founder of Finendorse. She is an enthusiastic crypto investor and has a huge interest in the upcoming digitisation age.