FCoin, a crypto exchange that has adopted the controversial “trans-fee mining” model, has paused trading and withdrawal. A few days after a rogue employee allegedly destroyed about $ 750 million from his original token, founder Zhang Jian practically declared bankruptcy. Why does Crypto exchange FCoin go bankrupt?
18 February, 2020 | AtoZ Markets – Zhang Jian, the former Huobi CTO launched FCoin in May 2018. He wrote a long article on Monday, saying that the exchange is now unable to process user withdrawal requests. Its reserve of assets is not enough for its liabilities. The gap is estimated at around 7,000 to 13,000 bitcoins (worth up to $ 130 million).
Why Does Crypto Exchange FCoin Go Bankrupt?
Explaining the whole story, Jian said that FCoin found itself insolvent due to gross negligence, namely “a data error + a decision error”. It is a shocking notice to users in China. Zhang said in the post that the crypto exchange was neither hacked nor a scam on exit. But the problem is too complicated to be explained in one sentence.
In summary, he said the problem came from internal system errors that have for a long time. The errors in the FT system began to give users more mining rewards than they should have earned, starting in mid-2018. The company did not put in place a full audit system to properly manage its cash until mid-2019. As the company failed to detect it early enough to remedy the situation, the snowball has increased further since the start of 2019.
He contacted his previous employer, Huobi founder, Lin Li, for help as a last resort in finding possible solutions. But it appears that FCoin’s past success was not enough for them to part with their money. As the price of the FT continuously decreased until 2019, Mr. Zhang said that he and his team bought back FTs in the secondary market to increase demand for the price of the token. But it was a “decision errors” he made.
Zhang said, these “decision errors” has given many users the ability to sell and withdraw more than what should have been in their account balance. It caused significant loss of FCoin assets on its own balance sheet.
Fcoin Promise to Refund Investors
Zhang said in the mail that he used all of his income to make up for the missing assets in previous phases. Even convinced other team members to do the same. The loss was greater than originally planned, and they found it too late.
The announcement was made just days after FCoin suspended its entire platform after discovering a risk control issue. After operating the platform for two years, FCOIN announced that it had failed, promising investors to return the money within three years.
Zhang said that he will now personally and manually process user withdrawal requests made by email. The current assets are not sufficient to reimburse all users. It will apply the principle of allowing as many users to withdraw as possible to minimize the number of people affected.
He said he “will change lanes and start again.” He hopes to use the profits from his new projects to “make up for everyone’s losses”. Until then, it seems that users and holders of FCoin tokens can only wait.
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