Even before the FTX crypto exchange saga is over, BlockiFi and AAX have stopped processing withdrawals. The two crypto exchanges halting withdrawals can be traced back to the liquidity crunch at FTX. But what made the crypto exchanges halt withdrawals?
BlockFi stops offering crypto withdrawals
On November 11, the cryptocurrency lender tweeted that it’s scaling down activities on the platform, including prohibiting its users from moving funds outside the exchange. According to the firm, the move was due to the uncertain nature of the issues affecting the FTX cryptocurrency trading outlet.
Apart from disabling withdrawals, BlockFi also advised users against initiating deposits. Interestingly, the news came just two days after the platform’s founder Flori Marquez revealed that BlockFi’s operations are unaffected by the ongoing saga at the Sam Bankman-Fried-owned cryptocurrency exchange.
At the time, Marquez noted that the crypto lender is “an independent business entity.” She also acknowledged that they have a $400 million credit from FTX’s US subsidiary known as FTX.US, which she said was “an independent entity.” In her tweet, she presumably referenced earlier engagements between the two firms when FTX US was considering putting BlockFi under its wings.
Although FTX.US and FTX.com were thought to be separate entities, it is yet not clear how a liquidity crunch at FTX.com managed to snake its way through FTX.US. The US outfit has also indicated that it may also join the category of crypto exchanges halting withdrawals. BlockFi’s move to stop users from withdrawing their cryptocurrency attracted criticism from current and former users.
Some even requested assurance that they’ll reunite with their funds. Commenting on the announcement, a Twitter user lamented that they had put all their “life savings” on BlockFi and they need part of the money to pay for rent. “Stopping new withdrawals or all of them?” another Twitter user asked.
In another developing story, Curve, a payments company has expressed interest in acquiring BlockFi’s credit card users. The crypto lender seems to have deactivated its credit card together with crypto withdrawals.
AAX crypto exchange halts withdrawals
Hong Kong-based crypto trading platform AAX is also among crypto exchanges halting withdrawals after the FTX fiasco. In a statement, the trading platform said that it’s stopping activities on the platform due to a system upgrade that had been pushed forward after the FTX saga. According to the exchange, activities at the SBF-led platform had impacted one of its unnamed third party.
Although it revealed that it had no funds held by FTX it didn’t disclose the relationship between the affected third party and the troubled crypto exchange. AAX told users that it’ll resume normal operations within ten days adding that the move is meant to protect users against “fraud and exploitation.”
AAX VP Ben Caselin further said the third-party partner failed to provide services as required causing the exchange’s system to operate abnormally. The exchange disclosed that it keeps a large percentage of its user funds in cold wallets and doesn’t use deposits to fund venture activities. According to Caselin, the crypto exchange halting withdrawals was just “bad timing for scheduled maintenance.”
Binance CEO offers preventive measures
Binance CEO Changpeng Zhao or CZ has offered preventive measures for exchange users who want peace of mind in an uncertain virtual currency market. In a Tweet on November 13, CZ said that crypto users should normalize holding funds in wallets that they have full control of. According to the Binance CEO, users need to take self-custody to a point of making it “a fundamental human right.”
However, he advised those looking for full control to start by holding small amounts of the funds to learn the ropes before fully embracing the technology.
Zhao’s advice was also provided by MicroStrategy CEO Michael Saylor. According to Saylor, exchanges holding too much funds give them excessive powers that may be sometimes abused. Apart from safeguarding funds, the MicroStrategy executive thinks that self-custody promotes decentralization hence the security of a blockchain platform.
In conclusion, the two crypto exchanges halting withdrawals may be the start of other bad news. For example, BlockFi didn’t paint the actual picture of the BlockFi-FTX.US-FTX.com relationship and AAX didn’t disclose how its third-party partner was affected by FTX.com’s liquidity problems.
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