China: Crypto Exchange FCoin Can’t Pay Back $125 Million in User Funds
FCoin founder Zhang Jian has published a lengthy tell-all detailing the demise of the once-promising crypto exchange platform with the service unable to service the $125 million in crypto deposits owed to customers.
FCoin Founder Bares All
On Monday (February 17, 2020), Jian published a blog post on the FCoin website revealing that crypto exchange is unable to pay back between 7,000 to 13,000 BTC. According to the post, FCoin’s troubles is neither an exit scam or a hack but a series of data and decision errors.
An excerpt from the post reads:
“The biggest problem that FCoin currently faces is not the problem that the system cannot be restored, but the problem that the capital reserve cannot be paid by users… This is a problem that is a little too complicated to be explained in a single sentence, the time span is also large, and the two-story development lines are advancing and affecting each other at the same time, leading to the final outcome.”
Despite the shortfall in the platform’s assets, Jian revealed that he is still personally managing withdrawal requests from customers which began earlier in February. According to the FCoin chief, the mail withdrawal process will continue for the next two to three months.
Jian also stated that he is launching a new project and that profits from the venture will be used to compensate FCoin’s customers based on a remediation plan to be revealed in the future. This long-term repayment plan could reportedly last for between one to three years.
The Bane that was “Transaction Mining”
Jian’s blog post also offered a post-mortem of FCoin’s failure which centers around the trans-fee mining model — the novel operational matrix adopted by the exchange upon its launch in May 2018.
FCoin rewarded users with transaction fees from their trading activities on the platform. The crypto exchange did this by minting its own FT tokens and issued 51 percent of the total supply to users.
As part of the system, users received 100 percent of their transaction fees in FT tokens. Customers who held FT tokens also received 80 percent of the fees collected by FCoin each day.
However, the inability to ensure robust platform auditing saw some FT holders receiving more mining rewards. Then a nosedive in FT token price saw Jian scrambling to buy back FTs in a bid to prop up demand.
However, with the platform’s internal “tokenomics” already skewed, the buy-back meant FCoin was draining its reserves to reacquire almost worthless FT tokens. The exchange has since destroyed the remaining 720 million FTs held in its coffers.