QuadrigaCX
The Story
QuadrigaCX was Canada's largest cryptocurrency exchange. Its founder and CEO, Gerald Cotten, was the only person with the passwords to the exchange's 'cold wallets' holding customer funds. In December 2018, he died suddenly while traveling in India. The exchange soon revealed it could not access $190 million in customer crypto. Investigations later found Cotten had been operating a Ponzi scheme, using new deposits to pay withdrawals, and had lost millions trading on other platforms.
🚩 Red Flags
- Single point of failure for all customer funds
- No public proof of reserves or audits
- Frequent withdrawal delays and excuses
- Founder's suspicious trading activity on other exchanges
- Company incorporated offshore
⚖️ The Fallout
The exchange declared bankruptcy. An investigation found most funds were lost or stolen years before Cotten's death. His death is still the subject of conspiracy theories. Creditors recovered a small fraction of their assets.
📚 Lessons Learned
Highlighted the critical need for transparency and proper custody solutions in crypto. 'Not your keys, not your crypto' became a mantra. Single points of failure are unacceptable.
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