Coinbase Users Across Georgia Milk Price Bug for 100x Profit

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  • Geor­gia-based traders told Block­works they could sell cryp­to on Coin­base for 100 times their val­ue elsewhere
  • They’ve since had their bank accounts blocked as well as asso­ci­at­ed Visa deb­it cards

Coin­base is seek­ing to claw­back funds from bank accounts after dis­cov­er­ing swathes of traders in Geor­gia had cashed out cryp­to for 100 times the intend­ed mar­ket rate.

Coin­base users across the Euro­pean nation were able to exploit an erro­neous for­eign exchange rate on cryp­to pairs denom­i­nat­ed in the Geor­gian Lari (GEL), accord­ing to one source famil­iar with the mat­ter and sev­er­al Geor­gian traders who spoke to Block­works under con­di­tion of anonymity.

A sna­fu at a third par­ty provider led to an out­sized exchange rate due to a mis­placed dec­i­mal point for up to sev­en hours. This allowed no more than 900 Geor­gia-based traders to sell var­i­ous cryp­to for GEL, and, in some cas­es, net thou­sands of dol­lars more than should’ve been allowed.

“In late August, prices for cryp­tos denom­i­nat­ed in Georgia’s nation­al cur­ren­cy had been rat­ed at GEL 290 instead of GEL 2.90. The missed dec­i­mal point had been due to a ‘third-par­ty tech­ni­cal issue,’” a Coin­base spokesper­son told Blockworks.

Some trades, which should’ve net­ted around $150, were exe­cut­ed on Coin­base for $15,000, with pro­ceeds with­drawn to per­son­al bank accounts, users told Blockworks.

The aver­age salary in Geor­gia is around $4,200 per year, mean­ing cer­tain Coin­base users prof­it­ed more than three times their nation­al aver­age. Esti­mates from a Geor­gian trad­ing com­mu­ni­ty that Block­works spoke to places loss­es for Coin­base between $14 mil­lion and $140 mil­lion, although Coin­base refut­ed that claim.

Short­ly after with­draw­ing relat­ed funds from Coin­base, Geor­gians said they received noti­fi­ca­tion from their finan­cial insti­tu­tions advis­ing them their bank accounts and asso­ci­at­ed Visa deb­it cards had been frozen.

“Hel­lo, we have marked your trans­ac­tions with Coin­base as sus­pi­cious and we’re lock­ing all your accounts and cards,” one bank’s blan­ket text mes­sage to cus­tomers reads. “Please be aware that Coin­base may request claw­back of the funds. Sorry.”

Image shows trad­er sold 0.009 ETH ($1.43) for 4,272 GEL, rough­ly $1,525, on August 30

At least two domes­tic banks are said to have been involved in the freez­ing of funds, though not at the direc­tion of Coin­base, one source close to the mat­ter said. One local bank declined to com­ment, cit­ing Geor­gian pri­va­cy laws.

“A very small num­ber of users (0.001% of our total users) were able to erro­neous­ly trade and with­draw a small non-mate­r­i­al amount of funds,” a Coin­base spokesper­son wrote to Block­works in an email. “Upon detec­tion, we fixed the issue and are tak­ing action to retrieve the improp­er­ly with­drawn funds.” 

Coinbase traders in Georgia profited in multiple ways

Coin­base, a pub­licly list­ed exchange incor­po­rat­ed in Delaware, reserves the right to claw­back or reverse trans­ac­tions found to have been paid out in error, accord­ing to its terms of ser­vice as laid out in its User Agree­ment

But funds unre­lat­ed to the trades have also been frozen, mean­ing traders have now found it impos­si­ble to buy gro­ceries and pay rent with their non-cryp­to relat­ed income, they said.

Geor­gia, which bor­ders on Rus­sia to the north and Turkey to the south, is not cur­rent­ly fea­tured on Coinbase’s list of sup­port­ed coun­tries which details how users can engage with their plat­form. Coin­base told Block­works it would pro­vide a full list of sup­port­ed coun­tries though, as of press time, it has not yet been received.

The cryp­to exchange, one of the most-used in the world, also has three tiered lev­els of trad­ing restric­tions with lev­el one the most restric­tive for users. That only allows for a per­son to send and receive cryp­to to their Coin­base wal­let once a phone num­ber has been ver­i­fied for Know-Your-Cus­tomer (KYC) purposes.

Lev­el two access, mean­while, allows users to pur­chase cryp­to only after they have sup­plied a valid pho­to ID, such as a pass­port or driver’s license. Lev­el three lets users send and receive cryp­to on the blockchain and requires users to ver­i­fy per­son­al infor­ma­tion includ­ing proof of address, per Coinbase’s web­site.

Accord­ing to one of the traders Block­works spoke to, fiat deposits are cur­rent­ly not allowed in Geor­gia, though trans­fers, send­ing and receiv­ing cryp­to as well as fiat with­drawals are. 

Traders explained that meth­ods of prof­it­ing from the price bug ranged from arbi­trage between exchanges — trans­fer­ring cryp­to pur­chased on anoth­er plat­form before sell­ing it via Coin­base for 100 times prof­it — to sim­ply sell­ing cryp­to bought on Coin­base and with­draw­ing it in fiat.

“[There were] mul­ti­ple lev­els of fail­ure from Coin­base,” one of the Geor­gian traders said. “They had no checks. Even worse, when they detect­ed unusu­al activ­i­ty, which they should have detect­ed, they failed to act on it for over sev­en hours.”

David Canel­lis con­tributed reporting.


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  • Sebas­t­ian Sinclair

    Block­works

    Senior Reporter, Asia News Desk

    Sebas­t­ian Sin­clair is a senior news reporter for Block­works oper­at­ing in South East Asia. He has expe­ri­ence cov­er­ing the cryp­to mar­ket as well as cer­tain devel­op­ments affect­ing the indus­try includ­ing reg­u­la­tion, busi­ness and M&As. He cur­rent­ly holds no cryptocurrencies. 

    Con­tact Sebas­t­ian via email at [email pro­tect­ed]

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