QuadrigaCX Probably Lacked Cold ETH Portfolios, Report Says

Analysis company blockchain Elementus concluded that QuadrigaCX probably did not have a cold Ethereum portfolio, following a thorough investigation of the QuadrigaCX portfolios consulted by The Block.

QuadrigaCX secured creditor protection this week to settle debts that emerged after the sudden death of CEO and founder Gerald Cotten. Cotten was supposed to be the only person to have access to the private keys of the exchange. His death would make all the cryptocurrency reserves of the exchange irrecoverable. The exchange currently owes $ 190 million to its 115,000 clients and a Canadian judge has given them 30 days to find the missing funds.

After badyzing the portfolios belonging to QuadrigaCX, Elementus is convinced that there was no Ethereum cold wallet. A cold portfolio is identified by examining currency movement patterns.

At a cryptocurrency exchange works normally, an excess of hot deposits / wallets is systematically sent to cold portfolios. When customers initiate a withdrawal without sufficient funds in hot wallets, cold portfolios begin sending funds to hot wallets. The user can then withdraw funds from the active portfolio directly on his personal portfolio.

Elementus discovered irregularities in its investigation of QuadrigaCX portfolios. Over the past three years, Elementus has found that hot wallet excesses were not sent into cold wallets. Instead, Elementus found that the funds in the custody portfolios were sent to two primary addresses and then to several centralized exchanges. In addition, Elementus noted that the funds in the Deposits portfolio had been transferred into a very large number of transactions with very small amounts of Ether. The implication could be that QuadrigaCX wanted to be discreet while permanently liquidating the funds in the deposit portfolio.

According to Elementus, the two addresses are:

1. 0x027beefcbad782faf69fad12dee97ed894c68549
2. 0xb6aac3b56ff818496b747ea57fcbe42a9aae6218

Elementus observed that there were no funds leaving these addresses in the past two weeks. This period coincides with the announcement of the death of Cotten. However, this does not coincide with his death on December 9 in India, according to a death certificate issued. Elementus says the transactions were transferred to the stock exchanges for a long time after the CEO's death.

More recently, the funds in the deposit portfolio have been sent directly to Binance. Poloniex and Bitfinex were among the other exchanges that received ether from QuadrigaCX addresses. In the past, Elementus has found that in the past three years, a large portion of the funds was continually sent to Shapeshift in small amounts. The majority of Shapeshift funds were then converted from ether to bitcoin before being sent to Bitfinex. Part of the ether was also converted to litecoin and bitcoin before being sent to Bitfinex. Interestingly, QuadrigaCX shared the same payment processor with Bitfinex – Crypto Capital.

Elementus claims that the total amount sent to trade is greater than the 430,000 ETH claimed by the QuadrigaCX affidavit found in the cold portfolios. Elementus says that "some of the funds sent were probably paid on some deposit accounts, but the majority was sent to exchanges and did not return."

Although Elémentus stated that it was possible for the funds sent to trade to be the "cold wallet" announced by QuadrigaCX, this is highly unlikely. The withdrawal issues experienced by customers prior to the CEO's death imply that the funds held by the exchange are not in the portfolio as these funds would have been returned to the hot wallet to allow customer withdrawals. It did not happen.