CEFISECURITY

90% of unknown tokens flow into user asset reserves? Understanding the controversy and response of CoinW exchange in one article

share
90% of unknown tokens flow into user asset reserves? Understanding the controversy and response of CoinW exchange in one article

CoinW, the exchange that has been frequently exposed in Taiwan recently, has indeed attracted the attention of investors; however, while its business continues to thrive, its background and security are still being questioned by some in the community. Below are some controversial points discussed in the community, and we also seek clarification from CoinW on some of the doubts raised.

What is CoinW Exchange?

According to the CoinW official website, CoinW is a centralized exchange (CEX) established in 2017, focusing on a wide range of investment products, ample liquidity, over 300 spot and 40 contract trading pairs, support for over 40 fiat currencies, and OTC deposit channels.

The content states that it has a bank-level risk control system and actively complies with global regulatory compliance, which are its strengths.

Four Controversial Points about CoinW

1. Registration and Jurisdiction Unrelated, Founder Not Disclosed

CoinW is a foreign company, and the official website claims to have four related registered entities:

  • LCT Holding UAB LLC presumed to be a Lithuanian registered company
  • LCT Holding Polish Limited Liability Company presumed to be a Polish registered company
  • COINW LINK LTD claimed to have a cooperative relationship with a Canadian registered company
  • BBT INC claimed to have a cooperative relationship with a US registered company

It is claimed that "COINW LINK LTD" is a FINTRAC-registered money service business in Canada. "BBT INC" is a company registered with the US MSB money service business registration.

The announcement mistakenly spells COINW as CPINW

Registration and Jurisdiction Unrelated

The above information shows that each company belongs to different jurisdictions. The "User Agreement" also mentions that legal disputes and litigation are governed by Saint Vincent, a well-known international financial tax haven in Latin America.

It is understood that "LCT Holding UAB LLC" is a company registered in Lithuania in 2021, and "LCT Holding Polish Limited Liability Company" was registered in Poland in December 2022, and both entities do not have public information about company executives. When checking the physical address of the company in Poland using Google Street View, it can be seen that the location is in the city center, in an inconspicuous residential area without company signage.

Founder Not Disclosed

Furthermore, CoinW has not disclosed information about its founder, only claiming to be headquartered in Dubai. In the past, only partial information about senior management has been disclosed, such as "2021 CoinW Global CEO Bai Mingguo," "Partner & VP Sonia Shaw," "CCO Carmen Tan."

In response, CoinW stated that they have never disclosed the founder in their six years of operation.

2. Claims of Licenses Do Not Fully Align with Reality

CoinW claims to have the following licenses:

  • US MSB license
  • Canadian MSB license
  • Lithuanian digital currency exchange and wallet license
  • Saint Vincent and the Grenadines Financial Services Authority (SVGFSA) license

Upon investigation, CoinW did declare a US MSB money service business and has MTL remittance licenses in multiple states in the US, allowing legal money flow exchange between states, similar to how US compliant exchange Coinbase operates. There are also related cryptocurrency exchange registrations in Lithuania.

Inability to Find Information on Canadian and Saint Vincent Licenses

Regarding the Saint Vincent license, neither CoinW nor its related entities are listed in the SVGFSA's registered entity list, but they have issued a press release claiming to have obtained the license.

In response, CoinW stated: "SVGFAS has foreign exchange business licensing requirements, and our name will only appear on the official website when we provide the relevant certificate or eliminate the foreign exchange rights. We are in the process of eliminating foreign exchange rights and expect our CoinW name to be searchable after completion in one month."

Additionally, there is no registration information for CoinW and its related entities on the Canadian MSB registration website. Looking at historical data, an entity named "COINWINS EXCHANGE" did submit a registration on May 4, 2022, but withdrew it on October 20, 2022. Although the COINWINS EXCHANGE website is no longer in use, its history dates back to April 2013, and the trademark is almost identical to the current CoinW.

2022 Canadian registered company website

Declaring Overseas MSB Does Not Provide Actual Protection

In fact, not only CoinW, but many overseas exchanges also declare MSB to the United States, but registering as an MSB does not mean it has the endorsement of FinCEN's supervision. It is merely a registration with the government for record-keeping purposes.

The MSB license itself or others does not provide protection for overseas investors in the US. It only serves as a basis for the company to comply with anti-money laundering and counter-terrorism financing regulations. Whether cryptocurrency investors are protected depends on whether the company is supervised by regulations in the jurisdiction where users are located. If the business operates derivatives such as contracts, futures, and options, it is also not within the scope of MSB regulation.

CoinW Intends to Comply in Taiwan

CoinW responded: "Regarding operations in the Taiwanese market, we have taken or are taking necessary steps to ensure compliance with Taiwan's regulatory and supervisory requirements. This may include establishing a registered company in Taiwan and applying for the appropriate licenses and anti-money laundering declarations."

3. Unknown Token $CVNT Appears in Reserve Assets and Has Been Transferred

Since the bankruptcy of FTX, the proof of exchange fund reserves has become a significant factor in whether an exchange can be trusted. However, a recent confusing event occurred at CoinW: a large number of unlisted tokens appeared in the reserve assets and were quickly transferred.

Going back to November 6, 2023, the coin price website CoinMarketCap showed that CoinW's reserve assets amounted to 7.393 billion New Taiwan dollars, including a significant amount of an unknown token $CVNT, accounting for 89% of the total reserve funds.

The last webpage record was in June of this year, when CoinW had accumulated $5.17 billion New Taiwan dollars worth of $CVNT, accounting for 59.3 billion New Taiwan dollars in total reserve assets, with CVNT making up 89%.

Following the community discussion, the original Dcard article has been deleted. Subsequently, the token was transferred to another wallet on the same day, suspected to still be owned by CoinW, with the address holding nearly 38% of the $CVNT token's supply.

Currently, by comparing CoinW's reserve funds on CoinMarketCap and GeckoTerminal, it can be observed that there is only about 935 million New Taiwan dollars remaining, with user reserve funds decreasing from 7.3 billion to 900 million in a few days, a reduction of nearly 90%, which is quite unusual. Moreover, the token has never been listed on the exchange. Previously, CoinW also held a significant amount of the high-risk exchange JPEX platform's currency JPC, accounting for 28% of the total reserve assets, even exceeding their own platform currency, causing controversy.

CoinW Clarifies: $CVNT Was Intended to be Listed Token

CoinW explained the situation: "CVNT was an asset that was planned to be listed on the CoinW platform. The project party also prepared the corresponding tokens for trading preparations. However, according to our research institute's rules and assessments, it was ultimately decided not to cooperate with the CVNT project party. This is part of our compliance and risk management strategy. Therefore, after full communication between both parties, the project party withdrew their token assets."

Concerns Regarding $CVNT Token

Upon further examination of the $CVNT token that CoinW had held in large reserves, it is found that the token's trading pairs are unusually unpopular, which may have been the reason why CoinW did not launch CVNT trading:

According to CMC data, the $CVNT token can only be traded on the MEXC exchange, and not even CoinW provides trading for that token. Furthermore, the token's 24-hour trading volume on MEXC is very low at only $26,000.

What raises suspicions further is that the price volatility of $CVNT over the past six months has been overly regular and almost unrelated to the overall market trend, suggesting potential market manipulation.

Additionally, through Token Sniffer's simple review of the $CVNT token contract, the token received an astonishing 0 out of 100 in security assessment, indicating it is a very high-risk token.

In summary, the token has the following concerns:

  1. The contract contains ownership functions that cannot be abandoned: the team has the authority to modify the contract content, such as prohibiting sales, adjusting gas fees, or minting more tokens.
  2. The token quantity held by owners exceeds 5% of the circulating supply: some wallets hold a large number of tokens, which may have a significant impact on the price when sold. Reportedly, the top two holder addresses own 83.7% of the circulating token supply.