Bitcoin exchange FCoin is insolvent. The controversial Chinese crypto exchange, which employed a unique “trans-fee mining model”, is shutting down, stiffing traders and investors by as much as $125.4 million in Bitcoin.
According to a tell-all blog post published by FCoin’s founder,
“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. The internal problems and technical difficulties we face are the result of financial difficulties. It is expected that the scale of non-payment is between 7000-13000 BTC.”
Founded in 2018 by former Huobi chief technology officer Zhang Jian, FCoin quickly scaled, reporting eye-popping trading volumes due to its pitch to traders: paying them in its native cryptocurrency FCoin for making Bitcoin or Ether transactions. It also disbursed 80% of the transaction fees it collected in Bitcoin and Ether to users who held BTC on the exchange.
Almost instantly, FCoin’s 24-hour trading volume eclipsed the combined sum of the top-10 exchanges on CoinMarketCap, triggering speculation that the exchange was a pyramid scheme.
Zhang simply claims the system ran afoul, almost immediately after launch, due to an error that caused the exchange to pay out more “mining rewards” than users should have earned.
I rarely called out anyone, with exceptions. On Chinese social media, I called FCoin a pyramid scheme in mid 2018. Their founder call his own plan a “better invention than #Bitcoin“. That did it for me. Who would say such a thing? About themselves? except scammers. https://t.co/oNbZyDDkZe
— CZ Binance (@cz_binance) February 17, 2020
According to Zhang’s statement,