Alternative trading platform Crypto.com has provoked outrage among customers in Australia and overseas with its decision to bin cash incentives for holders of its native token known as Cronos.
The market value of Cronos was pummelled on Monday as traders assessed the impact of the move to abolish cash kickbacks that encouraged customers to hold the alternative currency in their digital wallets.
The Cronos token, which had been trading at 35.5 US cents on Sunday slumped below 30 US cents soon after Crypto.com notified subscribers that it was removing the financial rewards associated with its Visa pre-paid card later this year.
To put this in some perspective, the price collapse ripped US$1.6 billion from the global market worth of Cronos in only a few hours.
To stoke demand for Cronos, Crypto.com has been paying out cash rewards to Visa pre-paid card holders if they locked away the alternative currency for six months or more.
Many of the incentives were quite lucrative for subscribers who could claim up to 8 per cent of the value of their Cronos inventories once the half-year storage condition had been satisfied.
Under the program, holders of Visa cards issued by Crypto.com would receive a cash payment of A$4000 if they stored $500,000 of Cronos “currency” for six months.
The practice of holding a cryptocurrency to get a cash reward is known in the crypto world as “staking”.
While staking comes at some financial cost to crypto issuers, it also has the effect of constraining the market supply of a virtual currency.
Presumably, this creates price support for cryptocurrencies such as Cronos.
Crypto.com said in a notification to Australian and global subscribers that it had decided to remove the cash rewards to “ensure long term sustainability”.?
“Launched in November 2018, the Crypto.Visa Cards have grown to be the world’s most popular crypto-linked card program, available in 40 countries,” Crypto.com told its customers.
“To ensure long-term sustainability, we are introducing a number of changes to the CRO (Cronos) Card rewards programme, effective 1 June 2022.”
Crypto.com has a tiered Visa card offering based on the amount of cash customers convert to the Cronos.
Under the previous arrangement, subscribers who staked more than US$500,000 of cash in Cronos tokens were issued with an “Obsidian” Visa card that entitled them to an 8 per cent cash reward after six months.
Subscribers who staked up to US$500 in Cronos tokens were entitled to a “Ruby Steel” Visa card and 2 per cent cash reward.
These card segments book-ended other tiers entitling customers to different incentives.
The negative impact of the changes on the market value of Cronos tokens could resonate for some months as more inventory of the cryptocurrency is released onto the market.
Cronos traders last night reacted angrily to Crypto.com’s decision by posting thousands of venomous comments on social media.
“I can’t get my head around just how awful this is,” one trader said on a Reddit page dedicated to Crypto.com.
“Crypto.com has been by far the worst experience I have had in crypto.
“I am just here with a HEFTY chunk of my portfolio locked into this dumpster fire and there’s nothing I can do but watch.”
Another trader said he was concerned that Crypto.com’s move could hasten government regulation of the cryptocurrency trading sector.
“As a company you should be disgusted with yourselves for screwing long term
customers like this in bad faith with almost zero notice,” the trader stated on Reddit.
“You are also screwing anyone that recently staked by locking them into a bait and switch.
“This sort of thing is also exactly what will play into government overreach into crypto.”
In the notification sent to customers, Crypto.com said the decision to remove the cash incentives had been a difficult one.
“Introducing these changes to the card program is a difficult decision,” Crypto.com told customers.
“We are committed to continue exploring and forging new partnerships to unlock greater value and benefits for our cardholders.”
It will be interesting to see whether Crypto.com’s action triggers a regulatory response from ASIC.
Crypto.com issues pre-paid cards in Australia under a financial services licence granted by ASIC.
The crypto exchange has leapt to global prominence in the last year as a sponsor of high profile sporting competitions and arenas.
Crypto.com last year reportedly paid US$700 million to have the home stadium of the Los Angeles Lakers basketball team renamed as “Crypto.com arena”.
In Australia, Crypto.com recently entered a five-year partnership with the AFL that has earned it the mantle of “The Official Cryptocurrency Trading Platform of the AFL and the AFLW”.
Crypto.com was founded in 2016 by Hong Kong businessman Bobby Bao and Brazilian entrepreneur Rafael Melo.
Melo is also a director of the Australian operation along with former Wirecard executive Karl Mohan.