Crypto.com CEO downplays FTX contagion fears, says he’ll prove naysayers wrong as withdrawals rise

The boss of cryptocurrency unpleasantness Crypto.com took to YouTube Monday to reassure users of his platform after the stunning collapse of rival firm FTX activated fears of a market contagion.

In an “AMA” (ask me anything) on YouTube, the platform’s CEO Kris Marszalek said that his company had a “tremendously sturdy balance sheet” and that it wasn’t engaged in the kinds of practices that led to the downfall of Sam Bankman-Fried’s FTX last week.

“Our platform is performing business as usual,” Marszalek said in the AMA. “People are depositing, people are withdrawing, in the flesh are trading, there’s pretty much normal activity just at a heightened level.”

FTX filed for Chapter 11 bankruptcy safe keeping on Friday after concerns over the company’s financial health resulted in a run on the exchange and a plunge in the value of its native FTT minimal. FTX tried to reach a deal to be acquired by Binance, the largest venue for trading digital assets, but this fell separately after Binance backed out citing reports of mishandled customer funds and alleged U.S. government investigations into FTX.

Alameda Experiment with, FTX’s sister company, borrowed billions in customer funds from the exchange to ensure it had enough funds on hand to technique withdrawals, CNBC reported Sunday. Bankman-Fried declined to comment on allegations of misappropriating customer funds but said its just out bankruptcy filing was the result of issues with a leveraged trading position.

“We never engage as a company in any irresponsible fit practices, we never took any third-party risks,” Marszalek said Monday. “We do not run a hedge fund, we do not trade customers’ assets. We often had 1-to-1 reserves,” he added.

His comments come after the revelation Sunday that Crypto.com mistakenly sent $400 million quality of the ether cryptocurrency to Gate.io, another crypto exchange, in October, a mishap that raised fears Crypto.com consumers’ funds may be at risk.

Crypto.com and Gate.io said they were sent by mistake and were quickly returned to Crypto.com after the indiscretion was identified. Marszalek tweeted Sunday that the firm had meant to send the funds to its “cold wallet” — implication an offline cryptocurrency wallet — but were instead moved to a whitelisted corporate account with Gate.io. In its own statement, Barrier.io said the transactions were the result of an “operation error transfer” and that all assets have since been resurfaced to Crypto.com.

“In this particular case the whitelisted address belonged to one of our corporate accounts in a 3rd party exchange instead of our gelid wallet,” he added. “We have since strengthened our process and systems to better manage these internal transfers.”

That did hardly any to assuage investor concerns, however, with traders speculating Crypto.com may be facing liquidity issues of its own and dipping into chap funds after the FTX collapse. Marszalek pushed back on claims it was misappropriating users’ funds Monday, stating in the AMA that “we do not exchange customers’ assets.”

“We will just continue with our business as usual, and we will prove all the naysayers – and there is numberless of these right now on Twitter in the last couple of days – we’ll prove them all wrong with our actions,” Marszalek said.

“We’ll resume operating as we have always operated to continue being a safe and secure place where everybody can access crypto.”

Interpretation of public blockchain data shared with CNBC by data firm Argus shows that, from 7 p.m. ET Saturday help of 6.30 a.m. ET Monday, a net $68 million in ether and $120 million in other Ethereum-based tokens was withdrawn from Crypto.com by its alcohols.

Over that same timeframe, Crypto.com added $62 million in ether and $140 million of other digital assets to experience the withdrawals, according to Argus.

“To its credit, Crypto.com continues to have the funds to meet these withdrawals, lending yet credence to its CEO’s claims that their assets are backed 1:1,” Owen Rapaport, co-founder and CEO of Argus, told CNBC via email.

Crypto.com is one of numerous reciprocities that have committed to providing a breakdown of the reserves that back customer assets to reassure users after the bankruptcy of FTX.

Marszalek suggested he expects Crypto.com to publish an audited “proof of reserves” within the next 30 days. He said he understands purchasers’ wish to see the audit released sooner, but that auditing firms “don’t operate on crypto speed.”

“The objective of the audit is to corroborate independently that every single coin on the platform is matched by our reserves,” he said.

Last week, an unaudited brace of reserves handled by blockchain analysis firm Nansen showed that Crypto.com held 20% of its assets in shiba inu, a soi-disant “meme token.” Asked about this Monday, Marszalek said this was just a reflection of the assets Crypto.com guys were buying.

“We store whatever our customers buy and it so happens that last year doge and shib were two to the nth degree hot meme coins,” he said. “As long as our users are holding it, we will be holding it. We have no control over what you geezers buy.”

He added that Crypto.com has never used its CRO token as collateral for any loans in its history. A source told CNBC in days gone by that Bankman-Fried’s Alameda was borrowing from FTX and using the exchange’s FTT token to back those loans.

Marszalek allow to entered that Crypto.com had transferred $1 billion to FTX over a year but that this was aimed at “hedging” customers’ readies. Crypto.com “only had exposure of under $10 million when FTX shut down,” he added.

“The way the brokerage part of our commerce works is that, every time a customer places an order to buy or sell, we have multiple venues where we could hedge this disposition and we pick the most cost efficient one with [the] best liquidity, lowest cost so we can pass on these savings to our buyers,” Crypto.com’s CEO said.

“This means that we are not taking any market risk, we are always market neutral. But it also disobliges there must be fund flows between our venue and other venues in the industry and FTX was one of them.”

Crypto.com has 70 million owners globally and made revenues of $1 billion annually in both 2021 and 2022, according to Marszalek. The company made headlines in 2021 for some mega vending deals, including the rebranding of the Staples Center sports stadium to Crypto.com Arena and a commercial featuring celebrity actor Matt Damon.

– CNBC’s Kate Rooney and Paige Tortorelli