In a Monday YouTube video, the CEO of crypto exchange Crypto.com Kris Marszalek moved to reassure users of his platform after the dramatic fall of rival firm FTX sparked fears of a market contagion. He said:
“Our platform is performing business as usual. People are depositing. People are withdrawing. People are trading. There’s pretty much normal activity, just at a heightened level.”
In the AMA (ask me anything) session on YouTube, Marszalek said that Crypto.com had a “tremendously strong balance sheet,” absolving it from any engagements in the kinds of practices that led to the untimely collapse of Sam Bankman-Fried’s crypto empire in the past week.
Addressing Rumors of Liquidity Issues
On Sunday, however, reports spread that Crypto.com mistakenly sent $400 million worth of Ether (ETH) to crypto exchange Gate.io in October. The revelation raised fears that users’ funds may be at risk at the Singapore-based crypto exchange. Marszalek tweeted that the company had meant to send the funds to its “cold wallet,” an offline crypto wallet, but were instead moved to a whitelisted corporate account with Gate.io. Speaking on the matter, Marszalek said:
“In this case, the whitelisted address belonged to one of our corporate accounts in a 3rd party exchange instead of our cold wallet.”
The executive added that Crypto.com had since strengthened its processes and systems to manage these internal transfers better. Gate.io cited the transaction as the result of an “operation error transfer,” acknowledging the return of all the assets to Crypto.com.
Notably, the clarifications by the two companies could have done more to assuage investor concerns as traders speculate that Crypto.com may be experiencing liquidity challenges of its own and tapping from customer funds following the FTX saga.
According to an analysis by Argus, a blockchain data analysis firm, between 7 PM ET Saturday and 6.30 AM ET Monday, a net of $68 million in ETH and $120 million in other Ethereum-based tokens were withdrawn from Crypto.com by its users. During the same duration, the exchange added $62 million in ETH and $140 million of other digital assets to facilitate the withdrawals.
However, Marszalek denied claims that the company was misappropriating users’ funds in the AMA, saying Crypto.com never engaged “in irresponsible lending practices, took any third-party risks, run a hedge fund or trade customers’ assets.”
Notwithstanding, the CEO reassured users that Crypto.com would continue being a safe and secure place where everyone can access crypto. He also committed to doing business as usual and proving naysayers wrong through value-adding actions.
On the credit question, Marszalek said that the exchange continues to have the funds to meet customer withdrawals, which, according to Argus co-founder and CEO Owen Rapaport, lent more credence to his comment that their assets are backed 1:1.
Exchanges Move To Reassure Customers
Marszalek said his company would publish an audited “proof of reserves” over the next 30 days, citing his cognizance of users’ wish to see the audit released sooner. He added that Crypto.com had to comply with the speed of auditing firms, saying that the objective of such processes is “to verify independently that our reserves match every single coin on the platform.”
An audited proof of reserves led by blockchain analysis firm Nansen last week showed Cryupto.com held 20% of its assets in meme token Shiba Inu (SHIB). Marszalek, however, opined that this reflected what his customers at Crypto.com were buying, saying, “we store whatever our customers buy, and it so happens that last year DOGE and SHIB were two extremely hot meme coins.”
Marszalek also articulated that, unlike FTX, Crypto.com has never used its CRO token as collateral for any loans. He also admitted to Crypto.com transferring $1 billion to FTX over a year to hedge customers’ orders, noting an under $10 million exposure when FTX was shutting down.
The way the brokerage part of crypto works, according to Marszalek, is that every time a customer places an order to buy or sell, there are multiple venues to hedge this order. Crypto.com “picks the most cost-efficient one with the best liquidity and lowest cost” and passes on the savings to customers.
Marszalek closed the session with confidence that his firm is not taking any market risk and always maintains market neutrality. This meant funding flows between their venue and other industry-based venues, thus their exposure to FTX.