- Elementus found that QuadrigaCX likely didn’t have any Ethereum cold wallets
- During the last three years, a large portion of the funds were continuously sent to Shapeshift in small amounts and then converted from ether to bitcoin, litecoin and bitcoin cash before being sent to Bitfinex
- Elementus says that “some of the funds sent most likely went back to some deposit accounts, but the majority has been sent to exchanges and didn’t come back.”
Blockchain analytics company Elementus concluded that QuadrigaCX likely didn’t have any Ethereum cold wallets, following a deep investigation of QuadrigaCX wallets viewed by The Block.
QuadrigaCX was granted creditor protection this week to settle debts which came into light following the sudden death of the firm’s CEO and founder, Gerald Cotten. Cotten was supposedly the only person with access to the exchange’s private keys, so his passing would make the entirety of the exchange’s cryptocurrency reserves irrecoverable. The exchange currently owes $190 million to its 115,000 customers and a Canadian judge has given them 30 days to find the missing funds.
After analyzing wallets that belonged to QuadrigaCX, Elementus is confident that no Ethereum cold wallet existed. A cold wallet is identified by looking at currency movement patterns.
At a normally functioning cryptocurrency exchange, an excess in deposit/hot wallets is consistently being sent to cold wallets. When customers initiate a withdrawal without enough funds in hot wallets, cold wallets start sending the funds to the hot wallets. The user may then withdraw the funds from the hot wallet directly to their personal wallet.
Elementus discovered irregularities in their investigation of QuadrigaCX wallets. During the last three years, Elementus found that hot wallet excesses were not being sent to cold wallets. Instead, Elementus found that the funds from deposit wallets were sent to two main addresses and then sent to several centralized exchanges. Furthermore, Elementus noted that the deposit wallet funds were moved in extremely large numbers of transactions with very small amounts of ether. The implication could be that QuadrigaCX wanted to be discreet while continuously liquidating the deposit wallet funds.
According to Elementus, the two addresses are:
Elementus observed that there have been no funds leaving these addresses during the past two weeks. This period coincides with the announcement of Cotten’s death. However, it does not coincide with his actual death, which occurred on Dec. 9 in India, per a released death certificate. Elementus claims that transactions moved to the exchanges for a long time after the CEO’s death.
Most recently, the deposit wallet funds were being sent directly to Binance. Poloniex and Bitfinex were among other exchanges that received ether from QuadrigaCX’s addresses. Historically, Elementus found that during the last three years, a large portion of the funds were continuously sent to Shapeshift in small amounts. The majority of the funds on Shapeshift was then converted from ether to bitcoin before being sent to Bitfinex. Some of the ether was also converted to litecoin and bitcoin cash prior to being sent to Bitfinex. Interestingly, QuadrigaCX shared the same payment processor with Bitfinex – Crypto Capital.
Elementus claims that the total amount sent to the exchanges is above the 430,000 ETH that the QuadrigaCX affidavit claims is in the cold wallets. Elementus says that “some of the funds sent most likely went back to some deposit accounts, but the majority has been sent to exchanges and didn’t come back.”
While Elementus said that it is possible that the funds sent to the exchanges could be the “cold wallet” announced by QuadrigaCX, this is highly unlikely. The withdrawal issues faced by customers before the death of the CEO implies that the exchange-held funds were not in the cold wallet, as these funds would have been sent back to the hot wallets to enable customer withdrawals. This did not happen.