"Controversy Erupts Over Improper Fighting Prize Money in 'Fists Up: Final Battle'! Exchange JPEX Accused of Misappropriation, Who Awarded the $390,000?"

Overseas exchange JPEX has recently launched a large-scale marketing campaign in Taiwan, not only establishing the Asia Blockchain Industry Building in Taipei and inviting industry players to join, but also enlisting well-known artist Chen Linjiu as a spokesperson. Recently, the "Fist Up: The Ultimate Battle" event was held in Taipei Arena, featuring Hong Kong esports rich second-generation Chung Peisheng, esports influencer Toyz, and other celebrities competing.

However, after the competition, controversy arose over the claim by JPEX that prize money would be distributed through smart contracts, with allegations that the funds originated from JPEX user deposit wallets, raising suspicions of asset misappropriation following the FTX incident.

What is JPEX, the sponsor of "The Cage Boxing Finals"?

Overseas exchange JPEX is the main sponsor of "2023 The Cage Boxing Finals." JPEX's logo can be seen in event-related activities, organized by Taiwan-registered company "Kairui Marketing" Carry Live. In press releases, JPEX describes itself as the organizer of the event. Additionally, during the event, JPEX also launched a "guess the match result and win prizes" activity.

According to JPEX's official website, the exchange's operational headquarters are in Dubai and are regulated by the Dubai Virtual Asset Regulatory Authority (VARA). They hold a Canadian MSB Fintrac license, as well as operational licenses from FinCEN in the United States and ASIC in Australia. Note: These licenses have limited jurisdiction and enforcement capabilities for overseas operations and are mostly unrelated to cryptocurrency derivatives.

JPEX's products include spot trading, derivatives, wealth management, among others. They do not currently offer trust or fiat deposit/withdrawal services in collaboration with banks in Taiwan, and they are not listed on the Taiwan Financial Supervisory Commission's list of anti-money laundering and counter-terrorist financing statements.

Is JPEX suspected of misappropriating client assets to fund prizes?

Post FTX incident, Proof of Reserve (PoR) has become a basic operation for exchanges. In countries with cryptocurrency regulatory frameworks, exchanges are required to segregate user funds and exchange assets. FTX Japan in Japan, for example, was able to protect most Japanese users due to asset segregation.

JPEX initially attempted to use smart contracts to prove the issuance of prizes, but netizens discovered that the "payment address" and "user asset wallet" were the same. According to research by netizens

Netizens analyze JPEX's commingling of funds

In a written analysis, netizens stated that the 390,000 USDT prize money for the boxing match was transferred from the JPEX user deposit wallet to the JPEX user withdrawal wallet, then into the smart contract, and finally transferred to the wallet of the boxing match winner, Zhong Peisheng. On-chain analysis charts explain

If proven true, this indicates two issues for JPEX: misappropriation of client assets and commingling of exchange and user assets, both of which are detrimental to JPEX's compliance.

JPEX-sponsored media clarifications

Before JPEX's announcement clarification, JPEX-sponsored media had indicated in related news articles:

"JPEX cryptocurrency platform only announced as the main sponsor of 'The Cage'; whether it is the same commercial entity behind organizing 'The Cage' and paying fighter rewards, or if another company or sponsor deposited funds into JPEX and then transferred the funds to Zhong Peisheng's wallet, the actual situation still requires further clarification." and stated that they have contacted JPEX's public relations for a response.

The media stated:

• The JPEX cryptocurrency platform is only announced as the main sponsor of "The Cage"
• Not all events and fighter payments are necessarily handled by JPEX
• It could be a sponsor transferring fighter rewards to JPEX, then to Zhong Peisheng's wallet

However, the claim that "JPEX cryptocurrency platform is only announced as the main sponsor of 'The Cage'" is not entirely accurate. Their sponsored content had already indicated that JPEX is the organizer:

However, the inference that "it could be a sponsor transferring fighter rewards to JPEX, then to Zhong Peisheng's wallet" may indeed be correct. If the prize money is not provided by JPEX but by another user who is also a JPEX user, it is possible that the observed fund path by netizens may occur.

JPEX announcement clarification: Organizer recharged to platform account

JPEX issued a statement explaining:

"Regarding the prize funds for '2023 The Cage Boxing Finals,' the relevant funds were recharged by the organizer into their platform account at an earlier date.

As this recharge was from the TRON chain to the platform and the smart contract address was on the Ethereum chain, the platform needs to provide technical support to assist in transferring it to the relevant smart contract to pay the prize money."

JPEX's Bitcoin wealth management product offers an abnormally high annualized return of 19%

Overseas exchange JPEX and the bankrupted exchange AAX are both prevalent trading platforms in Hong Kong. However, their wealth management products offer abnormally high annualized rates, which are extremely rare in the cryptocurrency industry. The annualized return for Bitcoin BTC wealth management products at JPEX is an exceptionally high 19%.

Comparatively, Binance's Bitcoin wealth management offers an annualized yield of 0.18%, while OKX's Bitcoin wealth management product provides a 5% annualized return.

Due to the significant difference in asset size between JPEX and platforms like Binance, users should exercise caution when dealing with such wealth management products. JPEX had previously provided asset proof updates up to November 2022

If JPEX encounters issues, the Taiwan FSC has no authority

In the FTX incident in November last year, the Financial Supervisory Commission (FSC) publicly stated its approach to risks associated with overseas exchanges: investors should assess risks themselves.

The FSC stated: "FTX Exchange is located overseas and is not an institution established with the approval of the FSC. The related products are provided overseas, and investors should evaluate the risks themselves." Furthermore, in a press release, the FSC once again reminded investors that virtual asset trading information is opaque, prices fluctuate significantly, and investment risks are high. Investors must remain vigilant and carefully assess investment risks.

Moreover, despite the SEC's lawsuits against multiple FTX celebrity endorsers and the UK's regulation of cryptocurrency promotion, Taiwan has no related penalties. Sponsored media, regardless of risk warnings, are unlikely to bear responsibility for investor losses.

For more concerns about JPEX exchange, please see Blockcast's report: Community frenzy reveals JPEX misappropriating client assets in "The Cage"