In an exclusive interview with Philippine Digital Asset Exchange (PDAX) CEO Nichel Gaba, he acknowledged that the prolonged downtime of the cryptocurrency exchange was due to a system glitch and not due to a fat-finger incident.
“The glitch in the system occurred because it really got overloaded due to a surge in volume. Yes, it was a glitch that we obviously have to go in maintenance mode to resolve and all the chains of entries in the ledger are then being reversed,” according to Gaba citing the reason for PDAX’s extended outage.
“One of the controls that the exchange is supposed to ensure is that orders are fully funded before they make it to the order book. If an unfunded order makes it to the exchange, it means that the buy/sell transactions get confirmed but the item being bought is not available to be delivered. It’s like an agent selling you a car, but tells you that the seller is not there. In order to protect all the transactions and all the users in the marketplace, we have to restore some of these accounts,” Gaba explains about the supposed glitch.
I was able to obtain the following screenshots from PDAX users who wish to remain anonymous. One person was able to place an order for BTC in PDAX priced at PHP300,000 (when the prevailing price was more than PHP2M at that time). The transaction went through based on this email confirmation:
A portion of the BTC in this transaction has since then been moved out of PDAX.
During the outage of the cryptocurrency exchange between February 16th and 17th, the same person received an email and SMS from PDAX notifying that his/her account has overdrawn BTC and that the exchange is asking him/her to return the said amount on or before February 20th (Saturday):
Another PDAX user with the same case also claimed that people from the exchange have been calling him/her to an extent that they are offering a monetary reward of up to PHP100,000 for the return of the cryptocurrency assets.
As of this writing, this person is still locked out of his/her PDAX account. Some of the users still affected by this incident think that they are being locked out of their accounts so that no email notifications will be sent to them as the exchange is reversing the transactions that they made before the downtime.
When asked to confirm if they indeed reached out to certain individuals who were able to transact at a much lower price before the system outage, the CEO of PDAX said, “At this time, we had reached out to affected users. The impact of the incident is not uniform for everyone. But every account is to be restored to its balance before any of the unfunded orders made it into the system.”
Trading Glitches and the Case of B2C2 vs Quoine in Singapore
In April 2017, cryptocurrency liquidity provider and electronic OTC trading leader B2C2 placed seven (07) transactions selling Ether (ETH) at an exchange rate of 10 BTC each (250 times higher than the market rate of 0.04 BTC to 1 ETH at the time) at Japanese trading platform Liquid. A day after the trades took place, 309 ETH were exchanged for 3,092 BTC ($12M then).
The following day, Quoine (mother company of Liquid) noticed the abnormality and reset B2C2’s balances to their state before the seven (07) trades. According to Quoine, a technical glitch occurred as it was updating its system against potential cyberattacks, during which the platform was unable to aggregate accurate market prices for both BTC and ETH.
This prompted a lawsuit with the Singapore International Commercial Court and a ruling came out in March 2019 stating that Quoine was liable for the “breach of contract and breach of trust” in reversing B2C2’s trades. During the case’s appeal, the Singaporean panel dismissed Quione’s argument, saying it is the programmer’s state of knowledge that is relevant in the context of digital agreements between a computer system and a participant on the platform.
PDAX CEO Nichel Gaba promised that everything will be back to normal within Monday, February 22nd. We are still waiting for the Bangko Sentral ng Pilipinas (BSP) to give their comments on the PDAX incident.