How Poloniex Enriches itself by Screwing its Customers

Update June 18: Today, after 4 months of denying customers access to their ETC, Poloniex finally re-enabled their ETC wallet.

Update May 10: Poloniex Support sent me an email today in which they state that they don’t have to prove anything and that this would be their last reply in that matter.

Update May 07: Poloniex Support sent me an email today in which they admit the outflow of ETC from their wallet at the end of March. They claim that these movements happend while their ETC wallet was enabled for a short period of time. I consider this claim a lie for several reasons. Firstly, the seven transactions that were made on March 30 all happend within the same minute. Secondly, all these transactions are above 100 ETC and two of them even for more than 9000 ETC. If the wallet would have been re-enabled for all, there would have been a more normal distribution of transaction sizes like there was before the start of the “maintenance” on February 18 (lots of small transactions below 100 ETC, rarely huge transactions). Thirdly, the only announcement on Polo’s Twitter account on March 30 was about disabling and re-enabling their TRX and TRC20 wallets; there was no mention of their ETC wallet. Fourthly, on March 20 Polo support promised me in an email to notify me once the wallet is re-enabled. Up to now, and, in particular on March 30, I didn’t receive any such notification.
I asked Poloniex to back up their claim and will update here in case they are able to provide evidence.

On 18 February 2021 the Seychelles based cryptocurrency exchange Poloniex disabled its ETC (Ethereum Classic) wallet, allegedly because of maintenance:

As of now, almost 3 months later, Poloniex’s ETC wallet is still disabled. Since no ETC can leave the exchange, the price of ETC at Poloniex is more than 30% lower than on other exchanges. Anybody who has ETC at Poloniex can sell these either at an enormous discount, or not at all.

Whenever asked about how long the maintenance will last or what the maintenance is about, Poloniex wouldn’t provide any infomation except asserting that their team is working hard to resolve the problem.

Now, in the last three months no other major exchange had any problems with its ETC wallets. Apart from that, while Poloniex allegedly wasn’t able to revive its ETC wallet in all that time, it happily added one new wallet after another for other cryptocurrencies:

For these reasons, it is safe to conclude that the reason for why Poloniex doesn’t enable its ETC wallet, isn’t that it doesn’t can, but that it doesn’t want to. So, why is Poloniex incentivized to deny its customers access to their ETC holdings?

I followed the trace of my past ETC deposits in order to find one of Poloniex’s ETC wallet addresses, leading me to 0xC0D3…6729.

This address belongs to the wallet that, according to Poloniex, is disabled for maintenance since mid-february. Surprisingly, this address isn’t all that inactive. As it turns out, there were several transactions on March 30. The latest of these transactions sends 9432 ETC to 0x1937…932d.

This address 0x1937…932d is a deposit address at cryptocurrency exchange Binance. (This can be concluded from the fact that 0x1937…932d is regularly swept to address 0x3f5C…f0bE, which belongs to Binance.) Since all customers were prohibited from withdrawing ETC, it has to be the Binance deposit address of Poloniex itself. If we take a closer look at this address, it becomes evident that Poloniex is a very active trader on Binance. Just yesterday (May 5) Poloniex transferred more than 20k ETC, worth roughly 2 million USD at the time of writing, to Binance.

If Poloniex bought these 20k ETC at its own markets at $65 and sold them on Binance at $94, it made a profit of more than $500k yesterday alone. This profit comes at the expense of Poloniex’s customers who are barred by Poloniex from transferring their ETC to other exchanges and, if they want to cash out their ETC holdings, have no other choice but to hand-over their coins to Poloniex at a 30% haircut.

Conclusion

Poloniex takes the ETC of its customers hostage in order to generate artificial low prices at its domestic markets. Movements from Poloniex’s ETC wallet to Binance suggest that Poloniex buys cheap ETC at its own markets and resells them on other cryptocurrency exchanges at the regular, higher price. Yesterday (May 5) alone, Poloniex probably netted at least half a million USD this way. This profit comes at the expense of Poloniex’s customers.