OX.FUN, a crypto derivatives exchange linked to the bankrupt Three Arrows Capital co-founders Su Zhu and Kyle Davies, is under fire following allegations of financial misconduct.

The controversy erupted after the platform allegedly withheld $1 million from a user, JefeDAO, sparking concerns over its financial stability and operational transparency.

Crypto derivatives exchange OX.FUN, which is linked to bankrupt Three Arrows Capital co-founders Su Zhu and Kyle Davies, is facing allegations of financial misconduct after it reportedly withheld $1 million from a user.

The exchange has accused JefeDAO of engaging in illegal market manipulation, which led OX.FUN to freeze the user’s funds, an action that is against the platform’s terms of service. According to the exchange, JefeDAO had deposited $1 million USDC on Feb. 14 and quickly began making aggressive trades.

The exchange alleged that the user placed large limit orders at prices below the market value to drive down the value of JAILSTOOL tokens before closing short positions at a large profit.

OX.FUN claims that JefeDAO has been pressuring the exchange to release the funds through social media posts and that the trader had declined a proposed settlement.

However, JefeDAO has countered these claims and accused the exchange of engaging in extortion. The user alleged that the platform offered to release the frozen funds in exchange for five months of free promotion.

Screenshots circulating online appeared to show that the exchange planned to return the funds in $200,000 monthly increments if JefeDAO endorsed the exchange publicly.

These allegations have drawn criticism from the crypto community, with many viewing OX. FUN’s actions as unethical. Some industry figures have also questioned why traders would choose to use a platform that is linked to Su Zhu, given his controversial past in the crypto space.

As the dispute unfolds, doubts about OX.FUN’s financial health have also surfaced on social media.

According to an analysis by Conor Grogan, a director at Coinbase, on-chain data suggests that the exchange has less than $1.7 million in non-OX assets. If a pending $1 million USDC withdrawal request is processed, its USDC reserves could drop to just $1,000.

Grogan’s analysis also indicates that OX. FUN’s Ethereum Gnosis safes are nearly empty, with the remaining assets mainly consisting of obscure tokens like FWOG and SLERF. He adds that the exchange has been withdrawing liquidity from liquidity pools, selling SOL to acquire USDC, and purchasing OX tokens.

However, Grogan notes that “there is a chance that they have untagged wallets I’m unaware of/not able to track.”

There have also been reports of significant withdrawal outflows from OX. FUN, with one viral message from a former employee suggesting that only $180,000 is left for withdrawals. The message also appeared to indicate internal struggles in distributing the last funds.

OX.FUN has denied rumors of insolvency and stated that withdrawals are being processed as usual. However, the exchange’s statement did not address allegations regarding layoffs or the remaining liquidity levels.