The FCoin crypto exchange, which used the contradictory “transaction mining” business model, suspended trading and withdrawal of funds after identifying a deficit of digital assets worth up to $125 million.
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The founder of the exchange, Jian Zhang, wrote that the exchange is currently not able to process user requests for withdrawals since its reserves do not meet obligations. The gap is estimated at approximately 7,000 13,000 BTC (about $53 125 million at the current rate).
Zhang emphasized that the default was not caused by hacking or fraud, but by erroneous data and management decisions.
Former CTO Huobi launched the crypto trading platform in May 2018, introducing a controversial trans-fee mining model. FCoin issued an FT exchange token, 51% of the coins were used to reimburse users 100% of transaction fees. In addition, the exchange distributed 80% of the fees between users who kept bitcoins on it for a day.
This model, picked up by several more sites, allowed to quickly increase trading volumes, having reached leading positions by this indicator.
However, according to Zhang, since mid-2018, the FCoin system erroneously accrued to users large amounts of fees for transaction mining than it should. At the same time, until the summer of 2019, the exchange did not have an internal asset audit system.
Over the past year, amid falling prices of the exchange token, Zhang and the exchange team began to buy FT in the secondary market to support demand and quotation. The founder of FCoin called it one of his erroneous decisions, as a result of which significant exchange assets and personal funds were spent.
Zhang said he would personally process the withdrawal requests manually via email. In his opinion, it will take from 2 to 3 months, but there are not enough assets.
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He assured that he compensates users for all losses, using the profit from new projects.
Recall that at the beginning of last year, the Canadian exchange QuadrigaCX stopped working, which lost access to wallets with user funds of $190 million due to the death of the founder.