PDAX held a press conference organized by the Geiser Maclang group to discuss the issue regarding the system outage that happened, which caused, PDAX has claimed, unfunded orders and system wide errors. There were also reports of users able to buy BTC at Php 300,000 (roughly $6,000) and were also able to custodize and transfer those Bitcoins out of the exchange on February 16, 2021.
In the press conference, CEO Nichel Gaba acknowledged ongoing customer complaints about the prolonged outage that PDAX has experienced, citing the surge in volume as the primary reason for one unfunded order to make its way in the platform’s order book.
Nichel also explained how the unfunded order happened in PDAX. He began by describing what funded and unfunded orders are.
Nichel said that on Feb. 16, 2021, an unfunded order was matched with other buyers.
“Because the buyer was able to purchase assets from an unfunded order, the buyer can then resell the same asset via the order book system, resulting in a chain of transactions, thus the resulting balances of users are a mix of unfunded and funded orders.”
And the maintenance was conducted to find out what caused this “glitch” to occur. “We also trace back all of the orders and decided to restore all user balances to the state before the maintenance.”
“We took this decision to protect the public and the integrity of the entire market,” Nichel added.
Nichel said PDAX is now operational and open to all but 0.2% of its users. “Today, we enable everything but some accounts have remained as we are still reconciling and working to restore their access to accounts.”
The PDAX CEO also said crypto withdrawals will remain a manual process for safety measures.
When one reporter asked Nichel to remark on reports that some of PDAX’s customers are intending to file lawsuits against the exchange, Nichel said everyone has a right to do what they think is fit to the situation.
“Users who are intending to file lawsuits or are very upset, everyone has a right to protect their rights the way they see fit. As a company, all that PDAX is assuring the public is that everything we are doing and continue to do will be in accordance with the law and the applicable regulations,” Nichel said.
This writer had the opportunity to ask some questions during the press conference.
There were reports of buyers able to execute the trade and able to custodize it, that means there were funds, there was BTC. If BTC was transferred to the exchange for sale that should be an onchain transaction. How can it be unfunded?
Nichel: Whenever there are withdrawal on the exchange, it means that users were able to withdraw BTC from the platform. The wallet infrastructure of PDAX is designed in such a way that as having assumed that users pre-funded their orders. The wallet infrastructure of PDAX allows for clients to withdraw assets from the exchange but as described earlier, because the original order was unfunded to begin with, then there were never any asset delivered to the exchange, but because of the wallet infrastructure, and the way it was set up, withdrawals were possible and there was an onchain transaction as a result.
Blockchain transactions can be tracked, transparent and public, will you be able to share the transaction ID?
Nichel: As part of our duties, customer activities are confidential, however, every affected user or the impact of the incident that led to this outage is discoverable from our side, and we have taken very careful steps in investigating everything that resulted from this and reconciling all accounts, and we are handling the affected clients individually.
In a recent report, it said that 80 – 85% of PDAX exchange volume is from facilitating institutional remittances. Assuming that an unfunded order went through, how does this affect your liquidity for your institutional partners?
PDAX does have a substantial institutional business, I don’t think it’s at that scale especially given that retail volumes have also become a substantial part of PDAX’s business. As far as liquidity is concerned, PDAX has always been well capitalized, as a startup, and we will continue to be well capitalized despite this incident, there should be no interruption to the services to our institutional clients.
Do you use whitelabel SaaS solutions? If so, is it possible that the glitch, as you claimed, happened because of these third party tools you are using?
Like many exchanges and even technology companies, the components of our platform, some are procured from third parties, some are proprietary and in-house. But what is important to point out is that when you are trading on PDAX, you are trading on PDAX and the user base of PDAX. With regards to our operations here in the Philippines, you can be assured that it is PDAX you are transacting on and with.
There were reports of users who were able to custodize their Bitcoin, but they said they were asked by PDAX to return them. (Citing the Ethereum Flash Crash of 2017 and the ruling on Quoine Singapore, wherein the exchanges did not go after those who bought at a low price or in case of Quoine, the court rejected the company’s claims that they can go after the buyers). What if these users choose not to return the tokens?
“I think it is very difficult to compare facts and laws across different markets, but I think what’s even more important to consider here is that because the platform suffered a glitch rather than anything intentional and malicious, and in fact the platform itself which is there to serve to protect all users who put in sufficient balances in order for trading to be facilitated. This is much bigger than just being asked to, being requested to return funds. This is really about protecting the integrity of the marketplace, and ensuring that traders who come on to the platform can expect that when they place an order, there is actually an underlying asset to be delivered.”
“So while I understand the difficulties, the inconvenience, and also the frustration that this can cause, this is the right thing to do. It was the right thing to do last week, it’s the right thing to do today, and it will continue to be the right thing to do going forward. At the end of the day, this serves to protect the market interest, and as more trust is built in the market, the better it is for everyone overall.”
Nichel added in a separate comment: “It’s very understandable that a lot of users will feel upset they were able to buy what they thought an order was there for Bitcoin at very low prices. But unfortunately, the underlying Bitcoins were never in the possession of the exchange, so there’s never really anything there to be bought or sold, unfortunately.”
Questions from other reporters:
Re: Reports that this was a result of a hack
Nichel: This was not a result of a hack, but a massive surge in activity leading to a glitch. This is not a scheduled maintenance. We have to remember that crypto exchanges are designed to be 24.7 marketplaces, however fair or unfair that may be. But whenever exchanges need to improve or scale, they will inevitably run into periods of maintenance.
Re: Opportunities lost because of the downtime (At its height, Bitcoin went to as high as $58,000, but PDAX users were not able to trade because of the outage, thereby some opportunities loss to cash out while the price was high.)
Nichel: I understand that the crypto prices were going up and I am a trader myself so I know how frustrating it is to not be able to take advantage of a trend in rising prices. There was no intention for us to be down or to schedule a maintenance, we are just as disappointed that our users where unable to take part in the market as the prices were going up.
“We are ensuring that our service is inline with our duty as an exchange. We expect to be operating normally.”
In his closing statement, Nichel also added: “0.2% are unable to access their accounts, I understand the frustration. I want to assure that what we’re doing is to make sure that you get back as soon as possible. and determine the incident. “
“I do understand the frustration. In fact, PDAX was started largely because i believe we all deserve to have a safe regulated trading environment that is automated and convenient to use. I hope that as we deal with this incident, in close coordination with relevant regulatory authorities, we are able to handle this in a way that protects the market’s interest and enables it to grow more than it is today.“
This article is first published on BitPinas: PDAX Press Conference: Exchange Discusses Outage in Detail