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

The brag of cryptocurrency speech Crypto.com took to YouTube Monday to reassure users of his level aft the stunning illness of rival steadfast FTX sparked fears of a marketplace contagion.

In an "AMA" (ask maine anything) connected YouTube, the platform's CEO Kris Marszalek said that his institution had a "tremendously beardown equilibrium sheet" and that it wasn't engaged successful the kinds of practices that led to the downfall of Sam Bankman-Fried's FTX past week.

"Our level is performing concern arsenic usual," Marszalek said successful the AMA. "People are depositing, radical are withdrawing, radical are trading, there's beauteous overmuch mean enactment conscionable astatine a heightened level."

FTX filed for Chapter 11 bankruptcy extortion connected Friday aft concerns implicit the company's fiscal wellness resulted successful a tally connected the speech and a plunge successful the worth of its autochthonal FTT token. FTX tried to scope a woody to beryllium acquired by Binance, the largest venue for trading integer assets, but this fell isolated aft Binance backed retired citing reports of mishandled lawsuit funds and alleged U.S. authorities investigations into FTX.

Alameda Research, FTX's sister company, borrowed billions successful lawsuit funds from the speech to guarantee it had capable funds connected manus to process withdrawals, CNBC reported Sunday. Bankman-Fried declined to remark connected allegations of misappropriating lawsuit funds but said its caller bankruptcy filing was the effect of issues with a leveraged trading position.

"We ne'er prosecute arsenic a institution successful immoderate irresponsible lending practices, we ne'er took immoderate third-party risks," Marszalek said Monday. "We bash not tally a hedge fund, we bash not commercialized customers' assets. We ever had 1-to-1 reserves," helium added.

His comments travel aft the revelation Sunday that Crypto.com mistakenly sent $400 cardinal worthy of the ether cryptocurrency to Gate.io, different crypto exchange, successful October, a mishap that raised fears Crypto.com users' funds whitethorn beryllium astatine risk.

Crypto.com and Gate.io said they were sent by mistake and were rapidly returned to Crypto.com aft the mistake was identified. Marszalek tweeted Sunday that the steadfast had meant to nonstop the funds to its "cold wallet" — meaning an offline cryptocurrency wallet — but were alternatively moved to a whitelisted firm relationship with Gate.io. In its ain statement, Gate.io said the transactions were the effect of an "operation mistake transfer" and that each assets person since been returned to Crypto.com.

"In this peculiar lawsuit the whitelisted code belonged to 1 of our firm accounts successful a 3rd enactment speech alternatively of our acold wallet," helium added. "We person since strengthened our process and systems to amended negociate these interior transfers."

That did small to assuage capitalist concerns, however, with traders speculating Crypto.com whitethorn beryllium facing liquidity issues of its ain and dipping into lawsuit funds aft the FTX collapse. Marszalek pushed backmost connected claims it was misappropriating users' funds Monday, stating successful the AMA that "we bash not commercialized customers' assets."

"We volition conscionable proceed with our concern arsenic usual, and we volition beryllium each the naysayers – and determination is galore of these close present connected Twitter successful the past mates of days – we'll beryllium them each incorrect with our actions," Marszalek said.

"We'll proceed operating arsenic we person ever operated to proceed being a harmless and unafraid spot wherever everybody tin entree crypto."

Analysis of nationalist blockchain information shared with CNBC by information steadfast Argus shows that, from 7 p.m. ET Saturday done 6.30 a.m. ET Monday, a nett $68 cardinal successful ether and $120 cardinal successful different tokens was withdrawn from Crypto.com by its users. Over that aforesaid timeframe, Crypto.com added $62 cardinal successful ether and $140 cardinal of different integer assets to conscionable the withdrawals, according to Argus.

"To its credit, Crypto.com continues to person the funds to conscionable these withdrawals, lending further 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 1 of galore exchanges that person committed to providing a breakdown of the reserves that backmost lawsuit assets to reassure users aft the bankruptcy of FTX.

Marszalek said helium expects Crypto.com to people an audited "proof of reserves" wrong the adjacent 30 days. He said helium understands users' privation to spot the audit released sooner, but that auditing firms "don't run connected crypto speed."

"The nonsubjective of the audit is to verify independently that each azygous coin connected the level is matched by our reserves," helium said.

Last week, an unaudited impervious of reserves handled by blockchain investigation steadfast Nansen showed that Crypto.com held 20% of its assets successful shiba inu, a alleged "meme token." Asked astir this Monday, Marszalek said this was conscionable a reflection of the assets Crypto.com customers were buying.

"We store immoderate our customers bargain and it truthful happens that past twelvemonth doge and shib were 2 highly blistery meme coins," helium said. "As agelong arsenic our users are holding it, we volition beryllium holding it. We person nary power implicit what you guys buy."

He added that Crypto.com has ne'er utilized its CRO token arsenic collateral for immoderate loans successful its history. A root told CNBC antecedently that Bankman-Fried's Alameda was borrowing from FTX and utilizing the exchange's FTT token to backmost those loans.

Marszalek admitted that Crypto.com had transferred $1 cardinal to FTX implicit a twelvemonth but that this was aimed astatine "hedging" customers' orders. Crypto.com "only had vulnerability of nether $10 cardinal erstwhile FTX unopen down," helium added.

"The mode the brokerage portion of our concern works is that, each clip a lawsuit places an bid to bargain oregon sell, we person aggregate venues wherever we could hedge this bid and we prime the astir outgo businesslike 1 with [the] champion liquidity, lowest outgo truthful we tin walk connected these savings to our customers," Crypto.com's CEO said.

"This means that we are not taking immoderate marketplace risk, we are ever marketplace neutral. But it besides means determination indispensable beryllium money flows betwixt our venue and different venues successful the manufacture and FTX was 1 of them."

Crypto.com has 70 cardinal users globally and made revenues of $1 cardinal annually successful some 2021 and 2022, according to Marszalek. The institution made headlines successful 2021 for immoderate mega selling deals, including the rebranding of the Staples Center sports stadium to Crypto.com Arena and a commercialized featuring personage histrion Matt Damon.

- CNBC's Kate Rooney and Paige Tortorelli