Indian cryptocurrency exchange Unocoin has maintained its suspension of deposits and withdrawals while investigating suspicious transactions involving its BitGo wallet infrastructure. The latest update suggests that the transfers may have been executed through a recovery mechanism outside BitGo’s platform, raising new questions about how the activity occurred despite the custodian account being frozen.
Unocoin said on November 13 that BitGo froze its enterprise account on November 6 at the exchange’s request and that the freeze operated as intended. However, the transactions under investigation were reportedly signed and broadcast outside BitGo’s platform.
Unocoin Suspects Misuse of BitGo Wallet Recovery Feature
The latest development centers on a recovery feature included in BitGo’s multisignature wallet infrastructure. According to Unocoin, this mechanism allows wallet holders to access their assets if BitGo becomes unavailable.
The exchange suspects that the feature may have been misused to authorize transactions outside the custodian’s regular platform. This could explain how outgoing transfers were possible even after BitGo confirmed that its enterprise account had been frozen.
Unocoin previously disclosed that it identified outgoing transactions from an Ethereum address within its BitGo wallet infrastructure on November 12. The address was used to fund ERC-20 tokens, and the exchange immediately escalated the matter to BitGo.
The custodian subsequently opened an investigation into how the transfers were executed. Unocoin’s latest explanation provides a possible avenue for investigators to examine, but it has not confirmed that the recovery feature was exploited or established who authorized the transactions.
Security Breach Forced Unocoin to Suspend All Services
The incident began on November 6, when Unocoin detected unauthorized activity within its infrastructure. The exchange responded by requesting immediate freezes of its enterprise accounts with BitGo and Fireblocks, which hold cryptocurrency balances used for its daily operations.
Both providers confirmed the freezes. Unocoin said that, at the time, it had not identified any loss of cryptocurrency funds.
However, further unauthorized activity was detected on November 9. The exchange then suspended all services as a precautionary measure to protect customer assets and information.
Its subsequent investigation established that its infrastructure had been compromised. The company has not yet identified the precise cause of the breach or determined which systems and information may have been exposed.
Unocoin also decided to rebuild its entire server infrastructure rather than attempt to restore the potentially compromised environment. Its November 12 security update estimated that the process would require approximately four to five working days.
More Than 90% of Customer Crypto Held in Cold Storage
Unocoin has emphasized that more than 90% of the cryptocurrency it holds on behalf of customers is maintained in cold storage, meaning the assets are kept in offline wallets.
Nevertheless, the exchange has not provided a definitive assessment of the funds potentially affected by the suspicious transfers.
Its investigation is complicated by the fact that its BitGo enterprise accounts remain frozen, preventing the company from accessing them directly. Unocoin has also pointed to BitGo’s use of change addresses, which can make it difficult to establish the complete transaction history through publicly available blockchain information.
As a result, the exchange says it does not yet have full visibility into potentially unintended transfers across its BitGo wallets. It has requested transaction-level information and further clarification from the custodian.
The company has stressed that it will not provide assurances about the status of customer holdings until the relevant information has been verified.
Unocoin Investigation Raises Questions About Custody Security
The incident highlights the security challenges associated with cryptocurrency custody arrangements, particularly when recovery mechanisms provide alternative ways to access wallet funds.
Multisignature wallets are commonly used to strengthen asset protection by requiring multiple approvals before transactions can be completed. However, recovery procedures and backup mechanisms also need to be secured because they can create additional pathways for accessing funds.
Unocoin’s investigation is now focused on determining how the transactions were authorized, whether its wallet recovery infrastructure was involved, and whether any customer assets were affected.
Do you think the suspected misuse of BitGo’s recovery feature points to a broader weakness in cryptocurrency custody systems?
Will Unocoin be able to restore customer confidence once its investigation is complete and withdrawals resume?
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