OKEx Suspends Withdrawals

October 19, 2020 11:34 PM
Crypto story of the day





Crypto was flat to marginally higher this morning as, in spite of the OKEx issues, the market is mostly quiet. Spot volumes are about in line with last week’s levels.

Crypto Story of the Day

OKEx, one of the world's leading crypto exchanges, announced a few days ago that it had suspended crypto withdrawals on the platform. The story is strange. OKEx blames the situation on an unreachable employee, owner of a private key, who is cooperating with authorities in an unrelated matter. While our feeling is that funds are safe, the bigger question for us is whether this is the start of a coordinated crackdown by the Chinese.

The news was initially disseminated by the exchange itself on their website, in a letter to customers in on the announcement page. The announcement,  describes a situation where the platform cannot approve withdrawals because one of their employees with private keys, to presumably a cold wallet, is unreachable. In more detailed descriptions through multiple channels, the exchange said the employee is cooperating with authorities on a case unrelated to OKEx. There has been no timeline noted for when the suspension would be lifted, OKEx in their initial post, cited a section of their terms which legally allows them to make such determinations. While the exchange has stated outright that funds are safe, the platform's exchange token OKB has fallen ~25% since the news was announced over 72-hours ago.

The venue hasn’t given more detail on their Twitter about the situation since Friday.

While we don’t have empirical evidence for support, we would find it extremely hard to believe that the exchange would have no back-up plan in the event of death or some other permanent inability to access private keys. We think the most likely outcome is that the exchange believes that the employee will be reachable shortly, therefore legally they may not have recourse to execute a back-up plan or believe the situation will be resolved soon enough that it is not worth changing their protocols.

Assuming this feeling is correct and funds are safe, the bigger question for us is why this employee is being detained. If it’s truly a matter unrelated to OKEx, the episode will be a stain on the platform's track record and policies will have to evolve to avoid such situations in the future. If, however, this is the beginning of a Chinese crackdown —crypto activities are for the most part illegal in China — it could have wider implications in the space, particularly as the U.S. begins their own crackdown on offshore platforms.  

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