Crypto.com transferred nearly 85% of ETH reserves to Gate.io in October, CEO assures it was accidental

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Crypto.com transferred nearly 85% of ETH reserves to Gate.io in October, CEO assures it was accidental Crypto.com transferred nearly 85% of ETH reserves to Gate.io in October, CEO assures it was accidental Monika Ghosh · 4 hours ago · 3 min read

Twitter is fraught with fear that exchanges may be faking proof of reserves amid rampant speculation.

3 min read

Updated: November 13, 2022 at 2:38 pm

Crypto.com transferred nearly 85% of ETH reserves to Gate.io in October, CEO assures it was accidental

Cover art/illustration via CryptoSlate

The Twitter community is on fire, discussing hidden motives behind asset transfers between Crypto.com and Gate.io that took place in October.

The exchange’s CEO Kris Marszalek responded to speculation and said the transfer was done accidentally and had since been reverted.

It was supposed to be a move to a new cold storage address, but was sent to a whitelisted external exchange address. We worked with Gate team and the funds were subsequently returned to our cold storage. New process and features were implemented to prevent this from reoccurring.

— Kris | Crypto.com (@kris) November 13, 2022

According to Marszalek, the funds were being sent to a new cold storage address but were mistakenly sent to a whitelisted Gate.io address.

Gate.io supported the narrative and reiterated in a Twitter post that the proof of reserves audit did not include the ETH transferred from Crypto.com. The firm also shared the transaction ID that confirmed all funds were returned to Crypto.com.

Clarifications on @cryptocom‘s transfer for the sake of transparency & education:

1) Snapshot for PoR audit taken on Oct 19. https://t.co/a4NJTN8Brj‘s deposit was not included https://t.co/5U5tZWFfBF

2) All 320K ETH were returned https://t.co/7G5l3YLLIhhttps://t.co/IvyiBu9aBY

— Gate.io (@gate_io) November 13, 2022

The transfer

Blockchain transaction data from Etherscan indicates that Crypto.com transferred 320,000 Ethereum (ETH) to a wallet that subsequently transferred the assets to a Gate.io wallet on Oct. 21. At the time, the assets were valued at $415.9 million.

Exchanges often move funds around for liquidity purposes. However, the timing of the transaction caused speculation among the community.

On Oct. 28, Gate.io provided its proof of reserves and made it open source. The report indicated that Gate.io has enough ETH reserves to overcollateralize user funds by 104%. However, the report also states that the data for the proof of reserves audit was obtained on Oct. 19, i.e. prior to the Crypto.com transfer of 320,000 ETH.

On Nov. 11, Marszalek announced on Twitter that the exchange has $3.0 billion in reserves, and shared the BTC and ETH cold storage wallets. The move was aimed at quelling fears of insolvency — Marszalek added that a more detailed proof of reserves report will be shared in the coming days.

Kris’ list of ETH cold wallets, included the address which transferred the 320,000 ETH to Gate.io. The list also included the address where Gate.io transferred back roughly 285,000 ETH tokens between Oct. 25 and Oct. 30.

In light of the rumors of Gate.io’s proof of reserves being inflated by Crypto.com’s reserves, Marszalek also posted a Twitter thread.

The ETH transfers that generated so much FUD & speculation on Twitter today were made over three weeks ago, on October 21st to https://t.co/pFc4Pz9nFR’s whitelisted corporate account at https://t.co/Mr9GCkL2gV.

— Kris | Crypto.com (@kris) November 13, 2022

Marszalek explained that funds from Crypto.com’s custody systems can only be moved to whitelisted hot wallets, cold wallets, and authorized third-party exchange accounts. The funds were moved to Crypto.com’s corporate account with Gate.io instead of the intended cold wallet.

Twitter users claim sinister motive behind Crypto.com transfers

Despite the assurances by Crypto.com and Gate.io, many Twitter users allege that the exchanges are borrowing funds from each other to prop up their proof of reserves.

Oh my gosh. Some crypto exchanges appear to be borrowing money from each other to fake “snapshots” of their reserves. https://t.co/D56BrNNGPX

— Coffeezilla (@coffeebreak_YT) November 13, 2022

Blockchain reporter @WuBlockchain pointed out that after releasing a snapshot for proof of funds, Huobi Global sent 10,000 ETH to Binance and OKX wallets. According to the user, the address showed 14,858 ETH as reserves during the snapshot while it held 4,044 ETH after the transfers.

The wallet referred to above contained 18,225 ETH at the time of writing, according to CryptoSlate’s analysis of Etherscan data.

Some Twitter users connected the Huobi situation to that of Crypto.com and Gate.io, alleging that the exchanges are inflating the reserves and transferring back assets after the snapshot is submitted. The users saw the transfers as unconfirmed proof that support their theory of Crypto.com’s insolvency.

These doubts and fears were further stoked by Binance CEO Changpeng ‘CZ’ Zhao, who cautioned users against exchanges that carry out large asset transfers before or after publishing proof of funds.

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

Marszalek has repeatedly assured users that Crypto.com transferred the funds to Gate.io in a clear mistake. And history supports his version of the story — Crypto.com sued a customer earlier this year after mistakenly transferring $10.5 million to the user.

But with FTX boss Sam Bankman-Fried assuring users that FTX US is “fully liquid,” a day before filing for bankruptcy, the crypto ecosystem’s trust is shaken and all claims are being taken with a grain of salt.

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