OKEx has suspended cryptocurrency withdrawals—revealing in a statement that one of its private key holders is co-operating with an investigation by a public security bureau.
Crypto markets were spooked by the news, which was announced in the middle of the night in the U.S.
Bitcoin fell by 3% before recovering some lost ground. OKB, the Chinese exchange’s utility token, was hit far worse—and at the time of writing, it was down by 9.5%, although it had dropped by 15.5% as the news hit.
In a statement, OKEx said withdrawals needed to be suspended because executives have been “out of touch” with the private key holder. A report in the Caixin Chinese media group said Xu Mingxing, the founder of OKEx, was the person in question
Stressing that its customers’ assets remain secure, the company added: “In order to act in the best interests of customers and deliver exceptional long-time customer service, we have decided to suspend digital assets/cryptocurrencies withdrawals … We assure [you] that OKEx’s other functions remain normal and stable.”
The major exchange—currently the 11th biggest in the world according to CoinMarketCap, with 24-hour trading volumes of $3.4 billion—added that withdrawals will resume as soon as the private key holder is in a position to authorize transactions.
Crypto markets panic
The OKEx announcement caused alarm on Chinese social networks including Weibo, but the response was slightly more muted on Twitter, where the company deactivated replies to a tweet informing followers about the outage. Jay Hao, the exchange’s CEO, later tweeted:
“All operations @OKEx except digital asset/cryptocurrency withdrawals remain unaffected. All your funds and assets are safe. The investigation concerns a certain private key holder’s personal issue only. Further announcements will be made.”
Angered Twitter users were able to respond to Hao’s tweet—with many asking why withdrawals were dependent on one individual in the first place.
Although this outage does appear to be temporary, it does draw some parallels to the sorry saga of QuadrigaCX. When the Canadian exchange’s founder, Gerald Cotten, died suddenly in 2018, it was claimed that he was the only person with access to the platform’s cold wallets. (A murky corporate structure and stories of mismanagement and theft later emerged.)
Other sections of Crypto Twitter were unflinching in pointing out that the OKEx outage is yet another example of the danger of centralized exchanges, with one writing: “Not your key, not your coins.”
Leo Weese, the president of The Bitcoin Association, added:
“That one person sits in China holding the keys to an entire offshore cryptocurrency exchange is probably the most surprising thing about this industry I learned this year. That customers don’t demand transparency about key management comes in at a close second, though.”
More bad PR for centralized exchanges
OKEx’s crisis is the latest in a string of incidents that have cast centralized exchanges in a negative light. The controversies couldn’t come at a more inconvenient time given the explosion in popularity that decentralized finance platforms have been experiencing.
Last week, four executives at BitMEX were forced to step down after the U.S. Department of Justice indicted them for violating the Bank Secrecy Act, amid allegations that the exchange had customer identification procedures that were deliberately weak and inefficient. The company’s former chief technical officer, Samuel Reed, was arrested on Oct. 1 and later released on a $5 million bond—but others remain on the run.
The crypto-friendly investing app Robinhood also fell victim to a hack attack recently, which resulted in customer funds being siphoned. Although the company said that a “very limited number” of victims have been identified, a report from Bloomberg suggests the incident may be more widespread than first thought, with at least 2,000 people affected.