Crypto Fee Fiasco: Paxos Blunder

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Martin Walker
Sep 14, 2023 at 09:12 am

On a fateful day, precisely on September 10, 2023, an intriguing incident unfolded within the cryptocurrency realm, a domain that continues to capture the imagination of financial enthusiasts worldwide. The central character in this digital drama was an account closely associated with Paxos, a notable figure in the cryptocurrency landscape. In an unusual turn of events, this account accidentally found itself overindulging in transaction fees, to the tune of a staggering $500,000, all in the pursuit of executing a Bitcoin transfer.

The revelation of this mishap comes to us through a statement, which Paxos, ever the protagonist, released on September 13th. Paxos, often lauded for its role as the issuer of stablecoins, including the widely recognized PayPal USD (PYUSD) with a steadfast value pegged at $1.00, and its own creation, the Pax Dollar (USDP), embarked on a journey beyond stablecoins, venturing into the realm of cryptocurrency brokerage. In this endeavor, they handle the mighty Bitcoin (BTC), a digital asset that wielded a value of $26,292 at that juncture.

Yet, as the wheels of fate turned, speculation began to swirl on X, once known as Twitter, suggesting that PayPal might be the puppeteer orchestrating this digital ballet. The catalyst for this speculation was the identification of a wallet account, seemingly associated with PayPal, by the astute analytics platform OXT. However, as the curtains rose on Paxos's statement, it became evident that the scriptwriters had crafted an unexpected twist – the error was Paxos's own, not a scheme masterminded by PayPal. Paxos's representative stepped forward to declare:

“On that fateful September 10, 2023, Paxos inadvertently erred in overpaying the BTC network fee. The repercussions of this miscalculation reverberated solely within Paxos's corporate operations, shielding the multitude of Paxos clients and end users from any adverse consequences. I solemnly declare that all customer funds remain securely ensconced within our digital fortress. This unfortunate episode can be attributed to a glitch in a solitary transaction, an issue we swiftly identified and resolved. Our dedicated team is in constant dialogue with the miner, earnestly working toward reclaiming the excess funds.”

The chronicle of this blunder was first unfurled on September 10th, its discovery occurring shortly after the incident transpired. As per the wisdom garnered from the blockchain's annals, the sender of the ill-fated transaction parted with approximately 20 BTC, a princely sum exceeding $515,000 at the time, for the privilege of dispatching a meager 0.07 BTC, a mere morsel valued at less than $2,000 in those digital days. At that juncture, Casa wallet's co-founder, Jameson Lopp, ventured to opine that the sending account bore the hallmarks of an entity, perhaps an exchange or a payment processor, grappling with recalcitrant software. A baffling history of over 60,000 transactions emanated from this singular address, adding intrigue to the tale.

The very block that harbored this transaction received its seal of approval from the Bitcoin mining pool F2Pool. On that September 10th, the pool's custodians made a generous offer, vowing to return the excessive funds to the sender if a claim was lodged within the span of three days. Failing such a claim, the extravagant fee would find its new home among the pool's diligent contributors of hashing power.

Before the grand reveal by Paxos, an ardent Bitcoin enthusiast, Mononaut, took to the digital stage on X, weaving a narrative that implicated PayPal as the maestro behind the scenes. Mononaut's case rested on the curious behavior exhibited by the sending account, bearing the alphanumeric moniker bc1qr35hws365juz5rtlsjtvmulu97957kqvr3zpw3, which bore an uncanny resemblance to a dormant wallet, identified as bc1qhs3gptkxem5y7yaq2yg0un2m8hae6wt87gkx4n, previously christened as "Paypal" by the blockchain sleuths of OXT.

To buttress this argument, Mononaut unearthed an intricate web of transactions, where the old "Paypal" address cleverly funneled approximately 18.5 BTC to the address known as bc1qlm0xlahpysq2v9yh5rhcc430xjz3xknqqnyvaf on that memorable day of June 19. Subsequently, this address orchestrated the movement of roughly 5.37 BTC to the freshly anointed address, the very one responsible for the ill-fated transaction. Lopp, always one to ponder, couldn't help but wonder if PayPal would step forward to reclaim their lost treasure.

In due course, Paxos, our protagonist, issued its statement, solidifying the narrative that the error was indeed of their own making, exonerating PayPal from any culpability.

It's a tale as old as time in the cryptocurrency realm, where missteps can translate into astronomical fees. In 2019, one Ethereum user witnessed the evaporation of over $300,000 when they inadvertently mismanaged their inputs. Fortune favored them as the mining pool extended an olive branch, agreeing to return 50% of the misplaced funds. In 2020, a different Ethereum user fumbled and accidentally disbursed $9,500 for a trade valued at a mere $120, an error that was described as nothing short of life-altering.

In their statement, Paxos gallantly declared their commitment to righting the ship, reaching out to the mining company that bore witness to the transaction and embarking on a valiant quest to reclaim the lost treasure.

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