FCoin, an online crypto exchange based in China, announced Monday that they were no longer able to process any further withdrawals as their asset reserves could not support the liability. The estimated deficit is around 7,000 to 13,000 BTC.
The founder of FCoin, Zhang Jian, released a detailed statement in Chinese on Monday. An English version of the statement was also posted to Reddit a short time later. While many users on Reddit were crying exit scam and hacks, Zhang Jian reported that it was neither. Zhang states that the deficit was due to a “data error + a decision error”, and that it “is a little too complicated to be explained in a single sentence.”
Who is FCoin?
Launched in May of 2018, FCoin introduced a new business model called “trans-fee mining”. Every Bitcoin or Ethereum transaction made to FCoin would result in the platform reimbursing the user in its equal FT (the token issued by FCoin) value. Users who held on to FT would also earn 80% of the transaction fees in return. The crypto community both praised and criticized trans-fee mining. However, still managed to attract a sizable user base.
What Happened at FCoin?
The data and decision errors that Zhang mentions in his post were a combination of an incomplete auditing system and an FT buyback plan that was to increase the demand for the token. This resulted in the system giving away more mining rewards than it could supply.
Near the end of his statement, Zhang vaguely hints at a new project that he is starting in hopes to compensate everyone’s losses. He adds that details of its progress to come at a later date. Regardless, it is with these types of unfortunate events that we here at CoolBitX feel that it is important to again, emphasize the importance of storing your digital assets into cold storage. In an industry that is constantly evolving, keeping your crypto secure is our top priority.