Chinese based cryptocurrency exchange OKCoin rose to popularity seemingly very quickly following their June 2013 launch. They quickly claimed the top spot for trading volume for both Bitcoin and Litecoin, leading many traders to move there from other exchanges due to OKCoin’s perceived greater liquidity. OKCoin also quickly became an industry leader in leveraged trading, short selling, and futures(features most other exchanges still don’t have available). Pretty quickly people started to accuse OKCoin of market manipulation and fake volume numbers, but the exchange has always operated with zero trading fees so it made sense that customers would use bots to make large amounts of trades that wouldn’t be profitable on exchanges with trading fees. The fact is, zero trading fees encourages more trades because even if a trader makes only a small amount of money on a trade, it remains profitable due to the lack of fees.
Roughly six months ago, OKCoin started to receive more mainstream press thanks to a deal inked with Bitcoin Entrepreneur Roger Ver to rent his domain, Bitcoin.com, for $10k USD per month. Roger was an investor in Blockchain.info so he already had a working relationship with the CTO at OKCoin, Changpeng Zhao, who had left Blockchain.info for OKCoin in June of last year. It is worth noting that Zhao has a relatively solid reputation in the Bitcoin community and when he joined OKCoin, it gave them much needed credibility. Previously, Blockchain.info had been the entity using the Bitcoin.com domain.
Then starting roughly 4 months ago, a large number of high ranking employees started leaving OKCoin, including the second highest ranking employee at the exchange, Changpeng Zhao. Another major employee to leave was their product manager and main social media spokesperson, Zane Tackett, who later joined rival Bitcoin Exchange BitFinex. The resignations started to fan the flames of rumors that there were problems at OKCoin but the company and their employees remained tight-lipped about the situation. That all changed two weeks ago when Roger Ver announced that OKCoin had broken their contract with him for the use of the Bitcoin.com domain and currently owed him over $20k USD.
Following the disclosure by Ver, OKCoin started throwing blame around, both at Roger Ver and at their previous CTO Changpeng Zhao, who had been the lead on the original deal with Ver. This must have angered Zhao, who had been quiet up until this point, but now proceeded to post a tell-all on the Reddit Bitcoin community.
His accusations include:
1) OKCoin runs bots on their own exchange and sometimes these bots only trade with each other (Some of these bots are designed to inflate their volume numbers)
2) OKCoin’s Proof-of-Reserve was faked by removing certain accounts from their numbers
3)Bitcoin wallet security is inadequate with the CEO, Star Xu, solely in control of the keys for the funds on the exchange
4) OKCoin employees are encouraged to trade on their own exchange. A severe conflict of interest with the potential for insider trading and front running.
5) Opaque Financials: Even though he was second in command and the second largest individual shareholder, Changpeng Zhao was never shown any bank accounts holding OKCoin’s USD and CNY funds.
You can find OKCoin's response to Zhao's accusations here.
Edit (June 3rd, 2015 - 19:56 UTC): In the Reddit comments section for this article, former OKCoin employee Zane Tackett has backed up the claims made by Changpeng Zhao. On another note, it has come to our attention that Zhao's most recent comments contradict those he made 7 months ago (and subsequently deleted) while still CTO of OKCoin. He may very well have been complicit in the practices that he has revealed, considering he was CTO of OKCoin for almost a year. Alternatively, he may not have been aware of the practices and upon finding out about them, chose to resign. Either way, these are still huge red flags, and if you wait for hard proof (which may never surface) before withdrawing your funds, it may be too late at that point.
There is no hard proof of anything that Zhao disclosed on Reddit but it does raise countless red flags. Those are some serious accusations and even if just 10% of what he said is true, that would be enough reason to move to another exchange. We advise all of our users to stop using OKCoin and to withdraw all funds stored with them immediately. We will update you if our opinion on this matter changes in the future.
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