Crypto exchange Crypto.com is under the microscope after sending $ 405 million to the wrong recipient, raising alarm bells among crypto watchers after the whirlwind unraveling this week of the exchange competitor FTX, which filed for bankruptcy on Friday.
Some crypto observers scrutinized the transaction speculating it was an attempt to reduce trading volume. Complicating the hoopla, the analyst was the first to catch the transaction employee from a rival exchange, Coinbase.
It also follows the blunder made in December when Crypto.com accidentally sent a woman in Australia $10.5 million instead of a $100 refund.
Crypto.com CEO Kris Marszalek said via Twitter that the transaction was an accident, while the company’s spokesperson told Yahoo Finance that the funds were intended to be sent to an offline cold storage crypto wallet, but by mistake to Gate.io, another crypto exchange.
Some crypto exchanges have accounts with competitors to increase liquidity during periods of volatility.
“The movement of funds from the custody system of Crypto.com can only be carried out between approved and whitelisted addresses attached to cold wallets, hot wallets (connected to the internet), and company accounts on third-party exchanges,” said the spokesperson .
Still, the transaction caused crypto investors who in the past 24 hours posted the price of the Crypto.com exchange token (CRO-USD) down 24%. At the same time, bitcoin (BTC-USD) decreased to less than 2.5%, while ether (ETH-USD) has decreased by 2.5%.
The incident also follows bids by several crypto exchanges to maintain confidence during the week of FTX’s collapse by hastily issuing “reserve proof”, which shows they are not using investor funds.
Some crypto exchanges, such as US-based Kraken, have been using proof-of-reserve for years. But the size can still be small depending on the frequency and number of balance sheets chosen by the company.
In the best scenario, proof of reserves can prove solvency, according to Sergey Nazarov, CEO and co-founder of Chainlink Labs, whose company offers a proof-of-reserve product.
“It shows whether the assets claimed by the company are available in real time,” Nazarov told Yahoo Finance of the Chainlink product.
On Thursday, Crypto.com published evidence of reserves in crypto wallets, stating that there are $3 billion in total customer assets. On Saturday, the figure was at $2.55 billion, down 15%, according to the Crypto.com wallet tracked by the blockchain analytics platform, Nansen.
For the same period, OKX – the third largest crypto exchange by trading volume after Binance and Coinbase – saw assets increase by $114 million. It has $5.83 billion in assets – 64% in ether (ETH-USD) and 25.8% in bitcoin (BTC-USD), according to Nansen.
Since last Sunday, Binance assets have increased by $4 billion from $66.7 billion to $70.8 billion, according to Binance wallets tracked by Nansen.
“Proof of reserves is great if you have proof of assets and liabilities,” Michael Anderson, co-founder with crypto venture capital firm Framework, told Yahoo Finance. “It gives you part of the story. It helps people understand that companies are using customer assets as collateral to borrow money.
David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and the stock market. Follow him on Twitter at @DsHollers