On July 3, 2018, Binance suspended all trading and withdrawal services due to “irregular” Syscoin (SYS) trades carried out “from a number of API users.” The exchange has since resumed all activities, according to a blog post.
Questions remain, however, as to the root cause of the problem.
While the price of Syscoin had hovered around 0.00004 BTC, an order for 1 SYS in exchange for 96 BTC was placed and completed on Binance. This trade sent the market into overdrive as users assumed that the exchange or the Syscoin protocol had been compromised.
Binance said it was revoking “existing API keys” and asked users to recreate their keys and be more protective. The exchange also informed users that it was rolling back irregular trades and will create a “Secure Asset Fund for Users (SAFU)” which will be funded by 10 percent of all trading fees “to offer protection to our users and their funds in extreme cases.”
After performing system upgrades, Binance announced that it had resumed normal operations at 8:00 a.m. UTC on July 4, 2018.
For its part, Syscoin, a bitcoin fork, tweeted an update, insisting that the protocol was not compromised. Notwithstanding the “odd trading behavior” and an “atypical blockchain activity,” their developers found nothing wrong with the blockchain.
Syscoin Co-founder Sebastien DiMichele told Bitcoin Magazine about a mandatory upgrade to the Syscoin protocol (126.96.36.199) released 10 days prior. This was due to the buggy nature of the previous protocol. “The superblock implementation had bugs that affected transaction validation,” DiMichele said.
DiMichele recounted how the team discovered the irregular trades on July 3. He said his team “noticed large buy walls across a few exchanges and the high increase of Syscoin’s value, rising to an all-time high of 96 BTC per Syscoin on Binance (roughly $650,000K per unit), possibly creating for a brief moment, an all-time high for the market cap of all of cryptocurrencies combined.”
However, the price increase wasn’t unique to Binance. DiMichele said they found massive buy walls on “exchanges such as Bittrex as well; however, 96 BTC per Syscoin was only traded on Binance.”
While the price of Syscoin surged across crypto exchanges, the company started receiving reports from users who were not able to deposit the purchased coin into their Binance wallets.
DiMichele said he was not sure why Binance had that problem, but he suggested it could be traced to the newer version they released some days ago. “I’m not 100% sure if Binance was still running the previous version or updated to the 188.8.131.52 version of the SYS protocol. We had, however, communicated the update to all exchanges several days before the superblock.”
According to the Syscoin team, the Syscoin’s problems seemed to start with Binance. “Community members let us know that Binance wallets did not appear to work and we investigated directly with Binance,” said DiMichele. “A few hours later, they released an API update, a maintenance to their entire exchange (not just the Syscoin wallet) and then reinstated trading/wallets.”
While DiMichele is not sure about the cause of the deposit issues on Binance, he says the spike in the price of the coin to 96 BTC can be traced to higher fees set by the miners. This also affected the confirmation of transactions on the block explorer.
He said the majority of the miners “had a set fee policy that was above the default kb / SYS fee rate of 10,000 satoshi per kb.” This resulted in transactions appearing to be unprocessed, “but in reality, they were just taking much longer.” Rumors abounded, and the price surged to an all-time high of $0.98.
The company later found large block output values of 544 million SYS and 1.2 billion SYS appearing on the block explorer. “It was at this stage that we asked exchanges to halt trading while we investigated the situation,” he said. Those exchanges have since resumed normal trading.
In a Github post issued at approximately 8:00 p.m. UTC on July 4, Syscoin stated, “Our observations conclude that the later action was extremely aberrant.” The company asserts that Syscoin was not hacked and the Syscoin chain was not attacked — it is “fully operational as per design.”
Bitcoin Magazine reached out to Binance for their explanation of the root cause of the problem but Binance has not yet responded.