tl;dr: On 15 November 2019, Hotbit conducted a serious scamming of its users. Even though this GRAM Refund Scam done by the Hotbit exchange affected a minor part of their users, it shows that the Hotbit management has no morals and thus cannot be trusted. Read more to learn how the scam was done.

The Telegram ICO in 2018

Note that Telegram is not involved in the Hotbit’s scam explained in this article.

Telegram, a popular chat app, is planning to launch its own blockchain called the Telegram Open Network (TON). The main token on that blockchain will be called GRAM.

In order to finance the project, Telegram raised $1.7 billion in 2018. It was a private sale with a GRAM token price of $0.37 (first round) and $1.33 (second round).

Among the investors were also some crypto exchanges, which planned to offer GRAM tokens to their users in re-sales.

One of these exchanges was Hotbit, which held its GRAM token re-sale between 17–20 September 2019.

The Hotbit’s GRAM re-sale explained

Let’s examine how the Hotbit GRAM re-sale worked.

Hotbit offered 137,500 GRAM tokens in total. The GRAM tokens could be bought with either Tether (USDT) or Hotbit tokens (HTB) in 4 re-sale packages:

Package 1: 75,000 GRAM tokens were offered (1 GRAM = 1.5 USDT) + lock-up period.

75,000 GRAM tokens were offered (1 GRAM = 1.5 USDT) + lock-up period. Package 2: 7,500 GRAM tokens were offered (1 GRAM = 357.14 HTB) + lock-up period.

7,500 GRAM tokens were offered (1 GRAM = 357.14 HTB) + lock-up period. Package 3: 50,000 GRAM tokens were offered (1 GRAM = 2.1 USDT), no lock-up.

50,000 GRAM tokens were offered (1 GRAM = 2.1 USDT), no lock-up. Package 4: 5,000 GRAM tokens were offered (1 GRAM = 500 HTB), no lock-up.

Why were the GRAM tokens in package 1 and package 2 cheaper than in the other two packages? Because they had a “lock-up period”, which means that you won’t get all the tokens at once when the TON blockchain launches, but you’ll receive them in 4 distribution rounds over the period of 18 months.

Over-allocation

This part is crucial for understanding how the refund scam worked.

The Hotbit re-sale allowed for over-allocation of funds.

What does that mean?

Let’s take package 4, for example. The maximum amount of money invested by all users in this package was 2.5 million HTB tokens (500 HTB * 5000 GRAM).

But Hotbit allowed for more than the “maximum” amount to be invested (over-allocation). If the maximum amount of 2.5 million HTB was exceeded, the investors would receive less GRAM tokens than they paid for.

Example: Let’s say you invested 500 HTB in Package 4. This means you would receive 1 GRAM token (if the max amount of 2.5M HTB was not exceeded). But let’s say this package was very popular and investors poured 5 million HTB tokens in it. This means the over-allocation was 2x and everybody then received only 50% of the GRAM tokens they initially thought they would. So instead of 1 GRAM, you’d receive only 0.5 GRAM.

So what happened at the end of the re-sale?

Three out of four packages were over-allocated:

Package 1 (over-allocation): 0.96 GRAM (instead of 1 GRAM) for 1.5 USDT

(over-allocation): 0.96 GRAM (instead of 1 GRAM) for 1.5 USDT Package 2 (over-allocation): 0.43 GRAM (instead of 1 GRAM) for 357.14 HTB

(over-allocation): 0.43 GRAM (instead of 1 GRAM) for 357.14 HTB Package 3 (no over-allocation): 1 GRAM for 2.1 USDT (the only package with no over-allocation)

Package 4 (over-allocation): 0.65 GRAM (instead of 1 GRAM) for 500 HTB

Note that this part is not the scam yet, because Hotbit explained in advance how the re-sale mechanism works.

TON/GRAM launch delayed

The TON blockchain was supposed to launch on 31 October 2019. But the SEC was able to stop the launch, so Telegram had to delay the launch until further notice.

The scam

Finally we’ve come to the scam part.

Because the TON/GRAM launch was delayed and the next date was unknown, Hotbit offered a refund to all the users that bought GRAM tokens in the re-sale.

This would be a nice move if Hotbit’s intentions were pure. But instead, Hotbit used this opportunity to scam their users.

How?

Let’s say you decided to buy 1 GRAM of tokens in package 4, for which you paid 500 HTB. Because that package was over-allocated, you received only 65% of the GRAMs you thought you would. So, in your case, 0.65 GRAM.

When you applied for the refund, you should have received 500 HTB back — the amount that you’ve invested. But instead, Hotbit only returned 325 HTB back (0.65 * 500).

The remaining amount was k̶e̶p̶t stolen by the Hotbit exchange.

Do not trust Hotbit

This scam shows that the Hotbit management has no morals. This was not a mistake done by Hotbit, but a deliberate theft of their users’ funds.

The greedy Hotbit wasn’t satisfied with just getting money by re-selling the tokens at a higher price than they bought them (which is legitimate). But they wanted to make additional money by scamming their users.

Because the crypto world is still much like the wild wild west, the investors need to be careful where they invest their money and whom they trust. It is very important that crypto exchanges show that they are trustworthy and they care about their users.

Hotbit has shown that they are NOT trustworthy and that they don’t care about their users. So our advice to everyone is to AVOID using Hotbit, ever.