“The Route to Hell Is Paved with Goodwill”
So reads the first line of an ominous Reddit post from FCoin’s founder on Feb. 17.
The announcement from Jian Zhang, formerly the CTO of Huobi, indicated that it would not be able to process user withdrawals because the exchange had become insolvent. “It is expected that the scale of non-payment is between [7,000 -13,000] BTC,” said the executive.
The culprit behind such malpractice was the very mechanism that helped FCoin briefly become a top exchange in 2018.
The exchange leveraged a unique “transaction-fee mining” reward to bootstrap adoption. In practice, this meant that for every trade fee paid on FCoin, the users would be reimbursed entirely in the exchange’s native token, FToken (FT).
Users quickly flocked to the exchange, thus pumping the price of FT and inflating the exchange’s volumes on CoinMarketCap. At one point, the exchange overtook the likes of OKEx and Binance at its peak.
Zhang indicated that the team raked in between $150 and $200 million at this time, with payouts to “old FCoin users” as high as 6,000 Bitcoin. Soon, however, this very mechanism became the exchange’s downfall.
In its short existence, FCoin had been periodically paying out users slightly more than they could afford. The team did not notice this discrepancy due to poor analytical tools for measuring payouts. Even after they began buying back FT with company funds, a user base eager to leverage the underdeveloped business model had far outpaced the team’s ability to save a sinking ship.
Still, in an act of good faith, Zhang is determined to payout all remaining withdrawal requests.
Over the next two to three months, the founder will fulfil all email withdrawal requests as part one of a two-part plan. The second part, relies on the success of a “new project,” said Zhang. He added, “Once the new project is on track, I will begin the long-term mail withdrawal process, which may take 1-3 years. In addition, for the other losses of FT and FMEX investors, I am also willing to use the profit of the new project to compensate. The specific calculation method will be discussed with you at the beginning of the compensation.”
At the time of writing, FT finished trading at ~$0.04, down from a high of nearly $0.30 in May 2019. FCoin reports a 24-hour volume in BTC/USDT of approximately $115 million, according to CoinMarketCap. FT is the seventh highest-traded coin on the platform.