Coinbase customers demand refunds over GYEN stablecoin glitch

Outraged Coinbase users launched an online campaign demanding that the cryptocurrency exchange reimburse their losses after a glitch led the company to freeze accounts for weeks, which could lead to huge losses for many customers.

Coinbase told clients that a technical problem in trading two cryptocurrencies in mid-November was due to “technical reasons.” Now, many of those clients are ruining the exchange by locking them out of their accounts and, they say, taking their funds inappropriately.

The Coinbase cryptocurrency exchange app displayed on an iPhone screen on February 12, 2018.

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The problem occurred in mid-November when Coinbase clients were able to purchase GYEN, a stablecoin that is pegged to the value of one Japanese yen. He was also involved in the POWR mishap, a cryptocurrency designed to be used in energy trading.

The dispute highlights the risks for millions of individual investors diving into new lightly regulated cryptocurrency markets, where the rules of circulation and relationships between exchanges and clients are still being worked out. And it shows that stablecoins, which are traded as pegged to external assets to avoid huge price volatility in other crypto currencies, are not always as stable as their name suggests.

GYEN was listed on Coinbase for the first time on November 10, according to crypto analysis firm Chainalysis.

Starting on November 17, the coin somehow broke free of the yen price it was supposed to target. Chainalysis says it jumped to a high of 0.065643, which is about 7.5 times higher than the fiat equivalent investors thought they were getting.

According to Chainalysis, transfer activity to Coinbase accelerated as of November 18 and peaked the next day at $ 122 million. On the other hand, Coinbase’s transfer activity peaked on November 20, the firm reports, and the volume transferred from Coinbase that day represents 84% ​​of total transfers.

It is unclear how many clients were involved, how many suffered losses, or how many were able to capitalize on the sudden increase in price and sell before the price fell again. The currency is now trading at the expected yen peg level.

The company said in an email to some clients obtained by CNBC that “between November 15 and 19, 2021, GYEN on Coinbase experienced unexpected behavior due to unusual market conditions. On November 19, this was further complicated. and for technical reasons, Coinbase disabled GYEN trading. “

“For clients trading GYEN until November 19, this may have led to decimal display issues for transactions (showing 100 times or so what was actually bought or traded based on the exchange rate confirmed on that moment), while the wallet balance accurately reflected the amount traded, “the email read.

Coinbase told a customer in an email that as a result, “all GYEN and POWR purchases, sales, exchanges, sending and receiving have been temporarily disabled on and Coinbase Pro while we work to correct this. We apologize. This is why – we know this is a significant issue and we are working as quickly as possible to correct it and ensure that affected clients can access funds as quickly as possible. “

When asked what actually happened and how the complaints would be addressed, a company spokesperson told CNBC: “In the coming weeks, Coinbase will publish a blog post about the November 19 event that involved the assets of GYEN and POWR. Both GYEN and POWR have resumed trading on Coinbase Pro and withdrawals are enabled on Our team continues to work around the clock to restore full trading on the Coinbase Retail App and to respond to inquiries from customers on this issue. Coinbase has no further comment at this time. “

Despite that statement, several Coinbase clients contacted by CNBC Tuesday night said their holdings in the exchange were still frozen.

Chris Fleming, owner of a construction and maintenance company in Ohio, said he bought $ 1,763 in GYEN on the night of November 18. But on November 20, when he checked his account, he said he was surprised.

“The coin soared, somehow it went up to $ 151,309 in my account. As anyone would say, holy m —. I thought I had to get yours out of here right away because at any moment it could go back to nothing,” he said. . said.

Fleming said he has not yet had access to his funds and started an online petition, which has now attracted more than 1,100 signatures from around the world.

“They held my ransom money for two weeks. I could have invested in other currencies and made potential profits,” Fleming said. “They have to give some solid, concrete answers, and they have to repay every single person who invested in this and lost money.”

Ricky Peacock, a Florida-based mortgage lender, is equally outraged. He said his Coinbase account was also locked after purchasing GYEN at various prices and suffered a total net loss of $ 132,000. In his case, he said that his account did not show an inflated value.

“One time [Coinbase] they realized they had made a mistake, they locked up everyone else to protect themselves, “said Peacock.” My real investment was my real investment. “

“My loss was solely due to Coinbase blocking all users while they fixed their 100x failure,” he said. “By doing so, Coinbase saved itself and threw customers like me under the bus.”

Ryan Huett, an Oregon winemaker, runs a Facebook group of more than 1,700 disgruntled Coinbase customers looking for answers.

Huett said he bought about $ 75,000 in GYEN on November 18 and 19, but at one point his balance showed 100 times what he bought. A screenshot of his account shows a current GYEN balance of approximately $ 67,000, which he said he cannot exchange or transfer.

“Coinbase should refund people the actual dollar amounts they invested above the stable price of the coin,” he said.

He said clients who made a killing and were able to transfer their crypto off the Coinbase platform before the accounts were frozen do not deserve to keep the money even though it was the company’s fault.

“I equate that to walking into a bank with a $ 100 check, and they give you $ 100,000 for it. I don’t think you’re entitled to that,” Huett said.

Philip Kleinman, a New York City public school teacher, echoed what other clients told CNBC: Once the company froze their accounts, they cannot access funds or get help from customer service. .

A Coinbase customer from around 2016, Kleinman said he tried calling the support line but waited almost three hours before giving up. He said he needs to access the nearly $ 4,800 he invested in GYEN.

“This is affecting thousands of users and we all feel abandoned,” said Kleinman.

Lucas Bauer, an army captain and medical assistant, said his investment was small, only about $ 400, but what happened infuriated him.

“Basically, Coinbase took a stablecoin, but didn’t make it a stablecoin during the investment process,” he said. “When all [got] this digital asset, the price went up, which it wasn’t supposed to. They took everyone’s money and let their prices go up, and they’re taking the peak of that price increase and they assume that everyone bought it at that extreme, and they stripped everyone of their money. “

He compared it to ordering a pizza.

“You enter your card information. Order two pizzas for $ 19.88. The confirmation email shows you will receive 200 pizzas for $ 19.88. Then [the company] freezes all pizza orders, rightly so. However, because so many people were ordering pizzas at the same time, the price went up, “he said.

“So four weeks later, when they try to fix the receipts, instead of the two pizzas that you ordered for $ 19.88, you get four slices of a pizza, because they keep the rest.”

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CNBC Jennifer schlesinger and Angelica Serrano-Romana contributed to this report.


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