FTX Extortion VS Coinbase Support: Choose Your Fighter

The Hundred Million Dollar problem that is Unsupported Crypto Deposits or UCD's.

At every laptop in crypto sits a human being prone to eventually make a mistake.

How an exchange chooses to handle this particular mistake & how the crypto industry as a whole should handle this problem speaks to the core of crypto ethics…if there is such a thing, but also industry goals of mass adoption. Unfortunately, until you yourself experience this surprisingly common mistake, you’ll likely not appreciate what a resolution means to a user - often it is life changing.

I now lost access for more than a month to $35090 of $HUSD.

I wish I never used Coinbase and this is deteriorating my mental health. I have not been productive as a student for the last 30 days. Many bad habits again.

I need the money for my student debt and I made a small mistake at the wrong exchange...

A verified claim as can be seen on Etherscan.

For those unfamiliar, a UCD occurs when a user mistakenly sends an unsupported token to their assigned wallet address at a centralized exchange. It is the equivalent of dialing a wrong number in the world of crypto - easily resolved with one caveat: Exchanges hold all the cards to fix it. Some DO fix it, some DON’T fix it, and some are using it as a source of revenue…which some might call extortion:

What’s worse? Charging an exorbitant fee…or not supporting UCD recovery at all:

So how easy is the fix?

Well, just ask Binance.com. Binance.com has largely automated the UCD recovery process down to a self-serve form with 5 fields. The fee to recover? .001BTC or ~$20 at time of writing. Surprising when you consider if the same were to occur at sister company Binance.US, the assets are simply ‘lost & unrecoverable’:

If you send an unsupported token to your deposit address, it will be lost. We cannot recover unsupported tokens, or supported tokens sent using unsupported Networks. Ensure you are depositing a supported token, from and to the correct network. - Binance.US

“Cannot” is an interesting choice of words. If the user address is able to send/receive any supported ERC20, clearly the exchange also has access to the private keys necessary to conduct a recovery transaction.

In technical terms, its even easier. All that is required to make a user whole is a single on-chain transaction costing a couple dollars on Ethereum to as low as a few cents on Binance Smart Chain (BSC). The process takes seconds to complete through any wallet provider. With proper controls in place, a single full-time employee adept at reading Etherscan could likely process hundreds of recoveries per day. A marginal fee would easily pay a salary & benefits package. Sign me up.

Hiding Behind ‘Policy’

Collectively the exchange policies regarding UCD’s are sometimes vague and varied from one another. There are also some nuanced variations of a UCD:

• A token could be deposited onto a wrong chain. For example USDC from Binance Smart Chain could be deposited to a user’s Ethereum address. Often this address is identical & requires the exchange to simply add that supported chain and conduct a transaction.

• A token could be an ERC20 on Ethereum but the exchange does not have that token available for trading. Again, the resolution requires a simple transaction to reverse and make the user whole.

• A token could be sent to an exchange owned wallet, rather than a user account’s wallet address. Again, if the exchange has access to this account, a single transaction is all that’s required to support their user.

Kraken, Gemini and OKEx all provide this service for free and in a relatively timely manner of a couple days to a week. Gate.io, KuCoin, Huobi & Binance.com also all offer this service for a nominal fee. The BitFinex policy is so convoluted they essentially do not support UCD recovery. So why the Bullshit?

SBF @SBF_FTX

We'll update our disclaimers to be more expansive, but obviously if you try to deposit a token FTX doesn't support, we might not be able to recover it; and if we can, doing so can be messy and expensive.

Messy & expensive….or profitable and predatory? In FTX’s policy they state:

Clearly if 7 of the Top 10 crypto exchanges by volume can recover the funds for free or a modest fee, surely the other 3 can too. So what’s this really about?

An uncapped 25% ‘fee’ on UCDs. Here’s an FTX user that nearly lost a million dollars if it weren’t for a strong pushback from Crypto Twitter which eventually led to NO meaningful policy changes.

When it comes to Coinbase, the user experience is nothing short of an absolute train wreck. While researching for this article, I contacted every major exchange in the Top 10 to ask (1) What is the process for a UCD recovery and (2) What fee (if any) do they charge for a UCD recovery. All exchanges except for Coinbase and OKEx were able to answer the question in a single chat response or email. However with both Coinbase and OKEx I was directed to a minimum of 4 different representatives, and received unrelated support article links, or answers inconsistent with their policies. Eventually OKEx answered correctly - however as of the time of this article, Coinbase has still not provided a coherent answer.

Here are some other responses:

How shortsighted can an exchange & industry be?

The negative effects on a user relative to the effort required in a UCD resolution are orders of magnitude apart & the ripple affects are far reaching. These users likely share their experience with friends, family, coworkers and colleagues - and the song is always the same: Look how much money I lost in crypto.

For an industry that so desperately wants to achieve some form of mass adoption, the UCD problem is top of the list coupled with the easiest solution. The longer there exists a narrative of Crypto = Danger to a newcomer or normie, how can all of us in crypto expect price go up?

There is a tendency upon hearing these stories of loss to immediately place the blame on the user:

Prolly should not send unsupported coins or tokens to an exchange that does not support the coin or token, just thinking outside the box here...

Maybe you shouldn’t have sent unsupported tokens to the wrong address.

"I sent unlisted coins to kucoin by mistake" sounds like this one is on you

This speaks to a parasitic and self-defeating cultural aspect of crypto: Lonely people behind computers in dark rooms united only by a financial cannibalism and self-hatred. Sounds like the internet. But it truly doesn’t have to be like this and change can start at the top with reasonable UCD policies that are non-extortionist…looking at you Sam.

At every laptop in crypto sits a human being prone to eventually make a mistake. How we collectively respond to that mistake defines us as an industry.

-TikiTorture

PS - If you have been a victim of this policy by FTX, or have unrecovered assets sitting in an exchange wallet, please contact me on twitter @_TikiTorture