FCoin, a crypto exchange that adopted the controversial "trans-fee mining" model, has paused trading and withdrawal as it reveals a shortage of crypto assets worth up to $130 million.
Zhang Jian, the former Huobi CTO who launched FCoin in May 2018, wrote a lengthy post on Monday, saying the exchange is now unable to process users' withdrawal demands as its asset reserve has fallen short of its liability – and the gap is estimated to be about 7,000 to 13,000 bitcoin.
The post, first published in Chinese and later translated on Reddit, comes as a shocking notice to users in China as the significant amount of assets in question led to the insolvency of the controversial model that at one point made FCoin one of the largest exchanges by trading volume.
Zhang claimed in the post that the exchange was neither hacked nor an exit scam but the problem is "a little too complicated to be explained in a single sentence."
In summary, he said the issue came from internal system errors that have – for a long period of time – credited users with more transaction-based mining rewards than they should have received. As the company failed to spot this soon enough to remedy the situation, the snowball has grown even larger since the beginning of 2019.
Fcoin went live around May 2018, introducing a novel model called "trans-fee mining" to incentivize trading and to issue its exchange token dubbed FT.
Instead of launching an initial coin offering or an airdrop, FCoin issued 51 percent of its FTs to the public in exchange for making transactions. For instance, for every transaction fee a user paid to FCoin in the form of either bitcoin or ethereum, the platform would reimburse the user 100 percent of the value in FTs.
In addition, FCoin would distribute 80 percent of the transaction fees it collected in bitcoin and ether to users who held FTs bitcoin continuously throughout a day. This model, while being criticized for possibly enabling price ...