Binance customers make erroneous deposits about 800 times a day, according to a spokesperson for the company.
Mistaken deposits occur when a user indicates they are going to send one kind of token to an address but sends another. Some are completely irrecoverable. Other times it might be recoverable, such as when a user indicates they are going to send one ERC-20 token and actually send another (even that isn’t always recoverable, apparently).
The finality of blockchains is by design. It’s a feature, not a bug, but internet users are accustomed to everything being reversible and fixable by customer service on the traditional web. This data point from Binance is a rare glimpse at just how often regular crypto users are making expensive mistakes.
The Defiant reached out to seven top exchanges to ask how they handle erroneous transactions. This question was prompted by a customer who was charged several hundred thousand dollars more for a recovery than expected, according to REKT News.
From exchange to exchange, determining what happens next when customers make this kind of mistake is difficult or impossible in most cases. However, if the experience at Binance is indicative of the rest of the industry, customers are making these mistakes all the time.
Binance was one of the few that responded with detailed background and an explicit policy. When the exchange determines its staff can recover an erroneously deposited coin or token, it charges 0.001 BTC (as it shows here) to do so.
Most exchanges did not reply at all. Bitthumb, Huobi, Kucoin, FTX and Gate did not respond to questions from The Defiant asking for a simple explanation on how they deal with this issue. A spokesperson for Coinbase responded with links to policies that weren’t relevant to the issue.
At this point in the industry, it seems like there should be clear policies around how exchanges help or don’t help customers after they make these kinds of mistakes. Greater transparency about funds lost to these mistakes would also help educate exchange users on being more careful.
At a basic level, it shouldn’t be hard for the public to understand what an exchange’s erroneous transaction policy is.
In REKT’s account, a user had sent one Ethereum token to FTX using an address the platform had provided. The problem, according to the user, was there had been a change in ticker symbols, so the user thought they were sending one token, and FTX was looking for another.
It was a $6.3M deposit. Based on FTX’ s stated policy at the time for erroneous deposits, recovery should have been about $315,000 (5% of the deposit). Instead the exchange kept a little over three times that.
FTX did not provide further comment on the discrepancy to the customer or to REKT. It’s erroneous address or chain policy has recently been updated. An August 16 capture by the Internet Archive shows the policy for depositing to the incorrect address at FTX as: ” If you deposit to an incorrect FTX address, we can attempt to recover it, but will charge up to $500 or 5% to do so.”
From now on we are forced to charge 5% of the value for deposits sent on the wrong chain when we recover them.— FTX – Built By Traders, For Traders (@FTX_Official) February 20, 2021
It is unfortunate that the externalities of promotion are pushed on exchanges trying to help their clientshttps://t.co/ToQJSvrzPS
That policy now reads: “A minimum 5% fee will be charged but in many cases we will either not be able to recover the unsupported token or will require a significantly higher fee.”
FTX didn’t respond to a request for details from The Defiant about how it deals with erroneous transactions.
It seems that different exchanges have different approaches to this issue, though not all of them want to make them explicit. A statement from Binance explained:
“Binance will help users recover wrongly deposited funds for a small fee which covers the time and on-chain fees required to process them which also require sensitive access.
“If our infrastructure does not support a network or a particular token on a network, we are unable to reverse the deposit. Due to the security measures of our wallets, the process to retrieve said funds requires development resources and multiple approvals to ensure the integrity of our infrastructure.”
Kraken currently does not have a fee for recoveries, when it is able to complete them.
“It often happens that clients send coins through the wrong network or through networks we don’t support,” Kraken said in a statement sent to The Defiant. “Some are recoverable and some are not. When making a deposit or withdrawal, we provide our client with all the details needed and our process includes a number of steps for the client to review and confirm that their transaction is correct.”
These issues are less of a problem for decentralized exchanges because the customer retains custody of their tokens until the trade. With an automated market maker, such as Uniswap, even if a user makes the wrong trade they will immediately receive a token they can trade again.
If the number of incorrect deposits is anything like Binance’s, it may help to explain why this is a sensitive issue among exchanges.