Online investigator questions the solvency of the exchange WOO X, WOO X responds: Allegations are unfounded.

Chris Brunet, a self-proclaimed former Canadian government economist turned internet investigator, is the founder of the subscription-based self-media Karlstack. He previously worked as an investigative reporter for the right-wing news and opinion website, Daily Caller, which has one million Twitter followers. Chris Brunet has raised questions about the service terms of WOO X, alleging that the quantitative institution Kronos has been using user funds to invest in high-risk cryptocurrencies, potentially leading to insolvency for WOO X. WOO X has denied these accusations, and the two parties are currently in a standoff.

Investigation: Alameda/FTX Compared to Kronos/WOO X

Chris Brunet's investigation is based on publicly available online data to infer a "debt to asset" situation, with the following points:

WOO X Terms Allow Market Makers to Utilize User Funds

According to the Terms of Service on WOO X, it states: "You expressly agree and authorize WOO Technology Limited to lend part or all of the digital assets you hold in your WOO X account to market makers at its sole discretion to provide liquidity and achieve zero trading fees for eligible users of WOO X. However, WOO Technology Limited will ensure that these digital assets, even if used by third parties designated by WOO Technology Limited, are only used for hedging and liquidity aggregation purposes and never for speculation."

Chris Brunet believes this model is essentially a replica of Alameda/FTX, and he finds the non-speculative claim unreliable and risky.

Is There No Speculation in Kronos' Portfolio?

Chris Brunet believes that while WOO X allows market makers to access user funds for operations, it lacks transparency. If Kronos Research can access funds at will, could it be used for purposes beyond hedging and liquidity aggregation, similar to Alameda?

He points to the investment portfolio publicly available on the Kronos Research website and questions whether none of the funds were used in these cryptocurrency projects. If they were, it would be considered speculation.

Debt-to-Asset Ratio? Website Updated

Chris Brunet screenshotted the WOO X homepage, which at one point displayed a "custodied reserve/debt" ratio of 79.3%, indicating that debts exceeded the custodied reserve. He emphasized that in the event of a run, only about 80% of the funds could be paid out.

However, upon further investigation, it was found that prior to publication, WOO X had updated its website, adding total asset statistics, thus avoiding a debt-to-asset situation:

Whether including or excluding the platform token WOO, in the total asset statistics, the funds exceed the debts; however, in terms of custodied assets, it remains at a level of 85%/81%.

Is WOO Token the Majority Reserve? Nansen Data Removed

Chris Brunet quoted third-party on-chain analysis by Nansen, showing that the WOO token accounted for 76% of WOO X's assets, raising concerns that in a trust crisis, smaller digital assets would quickly lose value. Note: Nansen has since updated their statistics.

Nansen's data:

Examining WOO X platform data, the WOO asset ratio also shows a 46% share, with a nominal total of 74%:

All these signs have made Chris Brunet uneasy about WOO X, urging people to withdraw their funds.

Other cases where exchanges predominantly hold platform tokens as reserves: Arcane Analyst: MEXC and Bitget's open interest and trading volume are relatively suspicious

WOO X Swiftly Responds: Denies Allegations

WOO X stated that a foreign media outlet (note: showing the community poster is a non-English speaker) erroneously reported that WOO X was in a debt situation. This, of course, is not true. WOO X has always maintained transparency but unfortunately has been targeted for false claims based on incorrect assumptions.

In response, Chris Brunet asks WOO X to prove that they are indeed not using user funds for speculative purposes as stated in the terms of service.

WOO X also told media Wu Shuo: 1. User assets, aside from being kept in custody (accounting for 80%), are also spread across five different third-party platforms, allowing users to view specific amounts on other platforms and decide on risks themselves; 2. The main asset for users on WOO X is WOO, hence the higher share; 3. Kronos Research is a multi-strategy hedge fund, limited to providing liquidity on WOO X and not engaging in speculation, with WOO X planning to introduce more liquidity providers.

Chris Brunet critically examines Kronos Research's liquidity claims, arguing that based on Kronos' investment portfolio, such actions constitute speculation.

The situation is still developing, and WOO X responded earlier with "No response. It's all misinformation, all creating panic."

Other cases of market makers confusing market-making with investment activities: CryptoGPT raises millions using ChatGPT, investors suspect DWF Labs of fraud

Compliance Concerns?

Looking at the current regulatory compliance framework, it is paramount for exchanges to segregate assets.

Given WOO X's default mode of accessing user funds, it poses challenges for regulatory compliance in regulated regions.

Additional: 1. Taiwan's September regulations emphasize asset isolation: FSC reiterates: "Regulations for Supervising Virtual Asset Trading Platform Operators" to be launched in September this year

Additional: 2. Taiwan's Rybit and Pionex wallets share suspicions

Additional: 3. Hong Kong regulators require exchanges to cold store 98% of user funds