Data Indicate Millions Deserting Crypto Wallets Linked to Now-Defunct Exchange

Binance, the largest crypto exchange on the planet, has imposed a freeze on accounts that received over 93,000 Ether from two wallets indirectly connected to the embattled Russian exchange, WEX.

Binance spokeswoman Leah Li has stated that the freeze has been implemented on October 25. The freeze on the accounts has been imposed due to a deluge of appeals coming from WEX customers, who have been closely monitoring the Ethereum Blockchain in the past few months. The WEX users claim that they have failed to withdraw their funds from the exchange. The Ethereum Blockchain is the known location of a public wallet that belongs to the WEX platform.

The users have been able to track the flow of funds via the Ethereum Blockchain and have reached the conclusion that the two wallets that sent the Ether to Binance (in 25 separate transactions from August to October) are actually under the control of entities connected to WEX. The investors have conveyed their worries that they will not be able to recover their money especially now that the funds have been transferred to Binance.

The users’ concern is due to the fact that WEX, which took over the now-defunct BTC-e exchange has disallowed since July withdrawals for major digital currencies like Bitcoin and Ether. With WEX’s affairs shrouded with uncertainty, beleaguered users have begun filing police reports with Russian authorities this month.

Based on the volume of Telegram chat groups dedicated to talking about the issue, hundreds of customers seem to be affected by WEX’s ongoing withdrawal concerns. One chat group has over 1,000 members while another one, centered on filing police reports, already has over 400 participants.

No less than $18 million is reportedly at stake, according to the market value of the Ether that has entered Binance. The exact figure might be bigger since only Ether has so far been spotted leaving WEX-linked wallets. Users have also been disallowed to withdraw most coins in recent months.

This predicament highlights the risks crypto traders face when they entrust their money to exchanges.

WEX began operating right after the U.S. government shut down BTC-e in July last year, and hitting it with a massive multi-million dollar fine. During its launch, Dmitrii Vasilev, the founder of WEX, branded the new exchange as a “re-launch” of BTC-e, adding that he had been coordinating with the former platform’s administrator to restore customers’ balances.

WEX operated normally for close to one year, gaining the trust of former BTC-e users. However, the situation suddenly turned sour as shown by the “highly inflated” prices of most of the exchange’s trading pairs.

In an e-mail sent to Binance, a trader who goes by the name Maxim M says, “Help us to return our money!” The trader adds, “If you don’t want to follow the path of BTC-e, which was closed down by the authorities following its use in the laundering of cryptocurrency stolen from Mt. Gox, you should suspend all the WEX’s wallets and accounts.”

Vasilev has yet to respond to the issue.

Meanwhile, Li states that Binance is “not familiar with the specific situation at WEX,” although “we always investigate user claims thoroughly and we will suspend account access if any unusual activity is detected.” She continues by saying:

“We are encouraging users who may be impacted to file reports with local law enforcement and ask them to send us case numbers or official notices/letters of investigation. So far, we haven’t been provided with any notices yet.”

Li explains that the freeze is only but temporary, adding that “we’re only able to freeze accounts for a short time; some sort of letter from law enforcement is required for a longer-term freeze.”

Public Ethereum data shows that the path taken by the two wallets, which sent ETH to Binance, leads back to an address that used to be controlled by BTC-e.

A closer look reveals that the BTC-e-linked address is connected, via a “divergent path of transactions,” to one single wallet undoubtedly belonging to WEX.

Ethereum block explorer Etherscan has identified the BTC-e address. Exchanges oftentimes request Etherscan to affix their brand name to their wallet, and once it is proven they are the true owners, the name gets assigned. Binance’s address is labeled in the same manner, but none of the others are in the web of transactions between it and BTC-e.

The string of transactions started on July 29 of last year, when 485,705 ETH were transmitted from the BTC-e address in a single batch to a different wallet, which users believe to be WEX’s first wallet.

The very same wallet eventually sent 480,000 ETH in 32 huge, round-number transactions from September 2017 to January 2018 to one specific address.

This wallet, indeed, belonged to WEX, after six users provided screenshots of their WEX withdrawal transactions. All of which having the address, 0xb3AAAae47070264f3595c5032eE94b620A583a39.

However, this particular WEX wallet was not the only Ether recipient from BTC-e. An additional 184,772 ETH was transferred to the address 0x95cDdecd01856aA896426bd1ee021D87F3A5c199. After that, smaller batches later passed through several various addresses.

Then, two addresses, which are both linked to the BTC-e wallet via a different series of six addresses, sent remarkable amounts of ETH to the address identified on Etherscan as belonging to Binance.

Between August and October, the first wallet transferred 78,581 ETH to Binance in about two dozen various transactions. The second wallet then sent 14,794 ETH to the exchange in three different transactions on October 15, 18, and 22.

The crypto trader Maxim has recounted that Binance’s initial response to his alert is disappointing, adding:

“They responded that they can’t do anything so far but would watch those wallets carefully.”

Binance’s response reads:

“Really thanks for your information, we are willing to cooperate with you. But at present it is hard for us to check all the account from WEX and take action. Anyway, we will keep an eye on this issue, if any update please feel free to contact us.”

Meanwhile, Li, the Binance spokeswoman, says the information that the accounts have been frozen on Oct 25 has been withheld from the WEX users until after Binance CEO Zhao Changpeng was asked about it on Twitter.

A Twitter user named John James tweeted on Monday night:

“WEX cold wallets are moving funds through @binance. Meaning Binance is potentially help launder millions of dollars worth of stolens funds from Wex users. We have proof too. @cz_binance.”

To this, Changpeng immediately responded:

“The identified accounts are frozen, please report to law enforcement and have a case number. We will work with LE. This is part of centralization we hate too, dealing with other exchange’s mess (we don’t even know the details). But we will do what we can.”