FCoin cryptocurrency exchange with a controversial “transaction mining” model suspended trading and withdrawal of funds after detecting a BTC shortage of up to $ 130 million.
Former Huobi CTO Zhang Jian, who launched the FCoin exchange in May 2018, said the exchange cannot process traders’ requests for cryptocurrencies due to a shortage of reserves, estimated at between 7,000 and 13,000 BTC. Jian said that the withdrawal problems are in no way connected with hacker attacks and will not lead to the closure of the exchange, adding that “the problem is too complex to be described in one sentence.” As a result, due to such a major shortage, the working model, thanks to which the exchange was able to increase its trading volume, became “insolvent”.
According to Jiang, the situation is caused by internal errors of the system, due to which, for a long time, users received more rewards for transactions than was provided. The management assumes that this began already in mid-2018, however, due to the lack of an internal audit system, which appeared on the exchange only in 2019, this problem began to grow “like a snowball”.
Recall that instead of conducting an ICO or distributing tokens, FCoin exchange distributed 51% of FT internal tokens to reward users for performing trading operations. For example, if on the FCoin exchange a user paid a trading commission with bitcoin or ether, the platform reimbursed him 100% of the commission cost in the form of FT internal tokens. By introducing such a model, FCoin was able to quickly gain a leading position.
In addition, Zhang named another possible reason for the shortage. Last year, the price of FT domestic token fell, so Zhang and his team began to buy it in the secondary market in order to support buyers’ demand and adjust the exchange rate. However, according to the head of FCoin, this was one of the erroneous decisions, since the exchange funds were spent on the purchase of tokens.
Zhang Jian assured users that he would personally process user requests for withdrawal via e-mail, and also reassured that sooner or later he would compensate for all customer losses by making a profit from his new projects.
The shutdown of the exchange could be expected after it became known that the FCoin employee deliberately destroyed the exchange tokens worth $ 75 million owned by the platform and its team members.