The Chinese cryptocurrency exchange, FCoin, has left a sour taste in the mouth of the industry as the business is shutting down under suspicious circumstances that looks like it will leave investors out of pocket to the sum of $125 million.
In a recent post, Zhang Jian, founder of FCoin explained that despite this shutting down appearing like an exit scam and/or hack, it is not. But also added that it appears as if the exchange will not be able to pay the 7,000-13,000 BTC ($67 million to $125 million) that is still owing.
The official reason for the closure of the exchange is also shrouded in mystery as Jian has explained that it is the result of a series of internal data errors and decisions that are too complicated to explain.
This move from the exchange, which only opened its doors in May of last year, represents another instance of a poorly run exchange that has added more dirt onto the industry which is looking to prove itself to regulators and users in general.
A concerning start
When FCoin emerged onto the scene, it was met with a lot of scepticism as the exchange started reporting large trading volume that was outstripping some of the largest and most well-established exchanges almost overnight. This was achieved by a business model they called ‘transaction mining’ which appeared to spout out fake volumes.
The manner in which the exchange began, besides its instant high trading volume, was also suspicious as the FCoin native tokens were not distributed via an airdrop, or ICO, as is traditionally done.
FCoin distributed 51 percent of its native tokens to users for reimbursing transaction fees. Users were incentivized to transact as frequently as possible, since the platform reimbursed 100 percent of the transaction fees they paid in their native tokens.
This even led to Binance head, Changpeng Zhao calling out the exchange as a Ponzi scheme.
“I rarely called out anyone, with exceptions. On Chinese social media, I called FCoin a pyramid scheme in mid-2018. Their founder calls his own plan a “better invention than #Bitcoin”. That did it for me. Who would say such a thing? About themselves? Except scammers,” he recently tweeted.
Damaging the reputation
It is unfortunate that such badly run businesses, which can be likened to scams, still persist in the cryptocurrency space which is looking to legitimize itself further. Regulation certainly is catching up, but there are still large holes globally which allow operations like this to operate and get away with poor business practices.