Hotbit suspended trading and funding functions; dYdX blocking user accounts tied to Tornado Cash

The Hotbit crypto exchange has suspended trading, deposit, withdrawal, and funding functions until further notice. The exchange said that a former employee had worked on an unauthorized project that is now suspected of being involved in criminal activity. User assets are safe, the company confirmed in a tweet.

Crypto exchange Hotbit suspends withdrawals amidst a criminal probe involving a former employee

Hotbit is not the first crypto company in recent months to halt withdrawals. Crypto lender Celsius halted withdrawals in June and has now filed for bankruptcy.

Embattled Asian crypto exchange Zipmex announced earlier this month that it would pause transfers between its Z Wallet and its Trade wallets, citing market instability. It resumed withdrawals for some altcoins, such as Solana on Aug. 2, 2022, XRP on Aug. 4, 2022, and ADA on Aug. 9, 2022. Zipmex had exposure to Celsius and Babel Finance.

While other crypto companies like Celsius froze withdrawals last month due to liquidity issues caused by leveraged positions, the authorities have frozen Hotbit’s assets in lieu of the investigation. Since the end of July, several senior managers have been subpoenaed by law enforcement and are cooperating in the investigation. Hotbit added that its employees had no knowledge of any illegal activities and that its lawyers are in constant communication with authorities to unfreeze the exchange’s liquidity. Hotbit staff hails from China, Taiwan, and the U.S. The company, founded in 2018, boasts Hong Kong and Estonia registrations and is based in Shanghai and Taipei.

It offers 547 trading pairs to its over one million customers in over 170 countries. It has outsourced threat detection to SlowMist and BeoMist and has thus far experienced no security threats and losses of customer funds.

Concerning user funds, any unmatched open orders will be canceled to avoid losses when assets are unfrozen. The exchange reassured customers that users would be notified of a compensation plan when the website resumed operations.

U.S. giant Coinbase recently became the subject of a probe by the Securities and Exchange Commission for trading unregistered securities. One of its ex-employees was charged with insider trading recently. Hotbit processed $350 million in trading volume in the last 24 hours, according to data from CoinMarketCap.

dYdX said it banned user accounts with a history of using Tornado Cash

Derivatives protocol dYdX confirmed that it blocked user accounts that previously interacted with Tornado Cash, in line with new US sanctions. dYdX added in a blog post that it is working with a “compliance vendor” that flagged certain accounts that had received funds from the Tornado Cash app.

Tornado Cash, a privacy and transaction mixing service on Ethereum, has been in the spotlight in recent days after the protocol was sanctioned by the US Treasury.

“Many accounts were blocked because a certain portion of the wallet’s funds (in many cases, even immaterial amounts) were associated at some time with Tornado Cash, which was recently added to the sanctions list by the U.S”, dYdX wrote in the blog post.

The exchange, though, clarified that it inaccurately banned several accounts, which had to be reversed. dYdX noted that these users hadn’t directly engaged with Tornado Cash and that they may not have known the origin of the funds transferred to them.

“We have made adjustments, within the limits of our compliance policies, that have unbanned certain accounts and we will continue to make efforts to limit flagging and track this issue moving forward,” dYdX added.

Due to compliance needs, exchanges like dYdX may refuse to do business with users who try to bring assets to their platforms from Tornado Cash-linked accounts. However, exchanges are not the only kind of crypto firms taking action in response to Tornado getting sanctioned. In fact, there are broader ramifications seen in the crypto sector in relation to this development.

For instance, Ethereum infrastructure provider Alchemy blocked Tornado Cash users from accessing its nodes. In another example, GitHub deleted accounts of Tornado’s contributors, wiping out of all of their software repositories on the platform.

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