A long-planned escape? "FCoin truth" is not true

通证通

特邀专栏作者

2020-02-27 20:26 (UTC+8)

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On the evening of February 17, 2020, the FCoin Exchange issued an announcement titled "The Truth about FCoin" and sentenced itself to death. According to the announcement, FCoin expects that the scale of assets that cannot be cashed is between 7,000 and 13,000 BTC, with a value of 0.68 to 127 million US dollars. Most of the assets of users cannot be withdrawn. FCoin broke the first thunder on the platform in 2020, is it a helpless move, or is it premeditated?

Summary

Topic: A long-planned escape? "FCoin truth" is not true. According to the official statement, the problem of FCoin lies in "errors in data + mistakes in decision-making". However, the three major doubts cannot be ignored: why not suspend mining and dividends in time after discovering the loopholes? The exchange assets continue to flow out, why is it not paid attention to? Why did you issue an announcement to destroy the team FT before cessation of operations? No matter what is behind the scenes of FCoin’s thunderstorm, the fundamental reason for the failure of this trading-as-mining model is that it is essentially more like a “FOMO” fund game.

Market: high volatility, mainstream pass callback. This week, the ChaiNext Digital Asset 100 Index closed at 921.83 points, down 9.1%; the ChaiNext Digital Asset 100X Index closed at 2683.41 points, down 13.8%. The total market value of digital tokens this week was US$287.96 billion, a decrease of US$25.45 billion or 8.1% from last week; the average daily trading volume was US$168.13 billion, an increase of 10.5% from last week. The current price of BTC is US$9686.4, with a weekly decrease of 6.1%, and the average daily trading volume is US$44.8 billion; the current price of ETH is US$265.60, with a weekly decrease of 6.6%, and the average daily trading volume is US$24.02 billion. This week, the BTC balance on the exchange was 779,000, a decrease of 9,190 from last week. The OTC premium of USDT RMB is about 1%, and OTC funds are more willing to enter the market.

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Risk warning: regulatory policy risk, market trend risk

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Topic: A long-planned escape? "FCoin truth" is not true

On the evening of February 17, 2020, the FCoin Exchange released an announcement titled "The Truth about FCoin", announcing the end of this popular exchange with the slogan "Trading is Mining". The announcement stated that the current problem facing FCoin is not that the system cannot be restored, but that the assets are not enough to be redeemed. It is estimated that the scale of assets that cannot be redeemed is between 7,000 and 13,000 BTC, with a value of 0.68 to 127 million US dollars. Most of the assets of users cannot be withdrawn. , affecting many institutions, investors, quantitative teams and ordinary users, Bigone's wealth management products are also affected by holding FT. FCoin broke the first mine of the exchange in 2020, was it a helpless move, or was it premeditated?

1.1 Transaction mining is all the rage

On February 10, 2020, FCoin announced a temporary downtime for maintenance, but it failed to resume as scheduled. On February 11, FCoin announced again that it had discovered a system loophole that may cause risk control problems. The community and users started heated discussions that lasted for several days, and there were various rumors about FCoin's bankruptcy and running away. On the evening of February 17, the FCoin Exchange released an announcement titled "The Truth About FCoin", officially announcing its death.

On May 24, 2018, FCoin officially launched transactions in the bear market, adopting the incentive method of "transaction is mining" to encourage users to trade, and return 100% of the transaction fees to users in the form of platform token FT. 80% of the daily income will also be returned to all FT holders.

On the day of its launch, the 24-hour trading volume of FCoin reached 17 billion US dollars, accounting for about half of the total market trading volume during the same period. The trading-to-mining model has also been followed by other small and medium-sized exchanges. FCoin’s voting for listing even paralyzed the ETH network.

FT skyrocketed 10 times to US$1.26 within two weeks after its launch, and its market value exceeded US$10 billion. As Zhang Jian said in the announcement, the starting point of FCoin is the dream of all entrepreneurs. FCoin founder Zhang Jian has earned a book value of 150 to 200 million US dollars in just a few months.

1.2 Was the decision wrong or was it a fluke?

According to Zhang Jian, the problem with FCoin lies in "errors in data + mistakes in decision-making." FCoin's back-end financial system is full of loopholes due to lack of manpower. It was not until more than a year after it went online that it was discovered that the system had sent users more FT for transaction returns, resulting in a loss of assets, which was estimated to cause a loss of 10-20 million US dollars. In addition, the team later used all the income to repurchase the over-issued FT, and the deficit further expanded, resulting in the current situation of insolvency.

But is the huge deficit really caused by "errors in data + mistakes in decision-making"? There are still several doubts in the announcement.

1. Why didn't mining be suspended in time after the vulnerability was discovered?

According to Zhang Jian, at the beginning of 2019, FCoin received feedback from users about returning more FT for mining, and froze a batch of accounts with data problems. The initial estimated loss was around 10-20 million US dollars.

In the second half of 2018, digital tokens are still experiencing a long bear market, and the price of FT has also fallen all the way to around US$0.015. The daily dividend of FCoin is only 2BTC. If there is a data error, it is impossible to have a deficit of 7000BTC.

The FCoin team earned a lot of income in the early days of its launch, and continued to operate during the bear market. If the scale of losses only expanded in 2019, why did the FCoin technical team know that there were major loopholes that might lead to asset loss and did not come up with a solution? Do you still want to continue trading under the premise of the plan? This is no longer a single mistake in decision-making, but serious problems such as management confusion and unclear division of responsibilities in the entire team. As the former CTO of Huobi and the leader of the team, Zhang Jian should not shirk his responsibility with a wrong decision.

2. Why hasn’t the exchange’s assets been paid attention to?

After tracking the on-chain transactions related to FCoin, the researchers found that the assets of FCoin have been continuously flowing out since June 2018. The blockchain data platform Chain.info tracked the BTC cold wallet address announced by FCoin in the asset transparency plan, and found that almost all assets in this address (about 10,000 BTC) were transferred through one or two addresses After that, it flowed into Binance, Huobi, OKEx and other exchanges. The last two transactions of FCoin's two cold wallet addresses occurred on January 30 and February 14 respectively, and the balances of the two cold wallets are currently 0.

According to the FCoin cold wallet asset curve chart, we can find that from July to August 2018, the number of BTC in FCoin’s cold wallet dropped sharply from 13,272 to 3,759, and then fell all the way after a brief rebound to 7,324, and finally in early 2020 Dismal to zero.

Even if FCoin does not have a complete background financial management system, it should be able to detect the continuous loss of assets from the cold wallet balance. The 10,000 BTCs that were reduced within one month in July 2018 should be enough to attract the attention of the FCoin team. The collection capacity can completely handle the shortfall of 10,000 BTC.

What is even more puzzling is that FCoin issued an announcement the day before the suspension saying that the team destroyed 700 million FT. There are rumors that the technicians deleted the code because they were dissatisfied with the destruction of FT, and Zhang Jian said in the telegram group that he repaired the system overnight. Is all this a drama directed and performed by FCoin? Some investors speculated that Zhang Jian, who had few assets left on the exchange and was desperate, misappropriated users’ funds to short BTC in order to make up for the small shortfall. Unexpectedly, BTC rose strongly, which led to a huge funding gap of US$100 million for FCoin.

No matter what is behind the scenes of FCoin’s thunderstorm, the fundamental reason for the failure of this trading-as-mining model is that it is essentially more like a “FOMO” fund game.

FCoin returns the handling fee to users in the form of FT, and distributes 80% of the income to all users who hold FT. What is its profit model? How long can it be sustainable to rely on only 20% of income?

The total issuance of FT is 10 billion, of which 4.9 billion are pre-issued and held by institutions, teams, and foundations. The FT held by the team is unlocked with the same amount of daily mining output, which means that half of the daily income dividend goes into the team's pocket, and only 40% is actually returned to the user. The essence of transaction mining is that users exchange real money for FT issued by the platform at zero cost, and the money rebates given to users actually come from the purchase of FT by new entrants. The biggest flaw of this system is that once the number of new users decreases and the transaction volume decreases, it means that the dividends will decrease, causing holders to sell FT, resulting in a vicious circle. However, there are not many application scenarios for FT itself, and its intrinsic value is limited. Its high price is a bubble caused by investors' irrational pursuit of growth, and it is not surprising that it will burst one day.

1.3 The alarm bell is ringing: choose an exchange carefully

Binance founder Zhao Changpeng expressed his opinion on the FCoin incident on Twitter, saying that FCoin is a typical pyramid scheme. Their founders called their project a "better invention than BTC", and no one except liars would say this.

The exchange wallet asset balance and the platform token economic model are indicators that investors must refer to when choosing an exchange. Generally speaking, exchanges with long-term low wallet balances, lack of application scenarios for issued platform tokens, and opaque platform token destruction mechanisms are prone to black swan events such as failure to redeem and collapse of platform tokens. There are not a few such exchanges. Investors should choose trading platforms carefully and increase their security awareness.

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Market: high volatility, mainstream token callback

2.1 The overall market: high volatility, mainstream tokens fell sharply

This week, the ChaiNext Digital Asset 100 Index closed at 921.83 points, down 9.1%. The ChaiNext Digital Asset 100X Index closed at 2683.41 points, down 13.8%. After the BTC continued to rise for more than a month, it fluctuated at a high level, part of the profit-making funds fled, and the decline of mainstream tokens was generally large.

The total market value of digital tokens this week was US$287.96 billion, a decrease of US$25.45 billion or 8.1% from last week.

This week, the average daily trading volume of digital tokens was 168.13 billion US dollars, an increase of 10.5% from last week, and the average daily turnover rate was 57.7%, an increase of 7.1% from last week. The trend of BTC is basically in line with our judgment last week that BTC has entered the key resistance zone of the previous high of 9,500 to 10,500 US dollars, and it is possible to form a volatile market in this range. This week, BTC fluctuated heavily in the range of 9,600 to 10,500 US dollars, and it is expected to further rise after the correction.

This week, the BTC balance on the exchange was 779,000, a decrease of 9,190 from last week. The balance of ETH on the exchange is about 13.830 million, an increase of 204,000 compared with last week. The total amount of BTC on the market has declined for two consecutive weeks, indicating that investors have a strong willingness to buy.

The market value of USDT is 4.657 billion U.S. dollars, an increase of 14.037 million U.S. dollars from last week, and the total amount of USDT in circulation remains unchanged. The OTC premium of USDT RMB is about 1%, and OTC funds are more willing to enter the market.

2.2 Core Token: Mainstream Token Callback

The current price of BTC is US$9686.4, with a weekly decrease of 6.1% and a monthly increase of 11.6%. The average daily turnover is 44.8 billion US dollars, and the average daily turnover rate is 25.1%. BTC stepped back on the previous finishing platform, and the bottom support was relatively strong.

The current price of ETH is 265.60 US dollars, with a weekly decrease of 6.6% and a monthly increase of 57.8%. The average daily turnover is 24.02 billion US dollars, and the average daily turnover rate is 82.5%. ETH had a large increase in the early stage, and the trend this week is still strong, and there is a high probability that it will continue to link up with BTC in the market outlook.

The current price of EOS is $4.07, with a weekly decrease of 24.1% and a monthly increase of 11.5%. The average daily turnover is 5.25 billion US dollars, and the average daily turnover rate is 127.3%. EOS fluctuates more violently and has higher risks.

The current price of BCH is $379.4, with a weekly decrease of 22.8% and a monthly increase of 9.3%. The average daily turnover is US$5.66 billion, and the average daily turnover rate is 77.2%. The concept of production reduction has been shut down across the board, but BCH, as one of the leaders in production reduction, still has the possibility of a new high in the market outlook.

This week, the monthly volatility of major tokens increased, and the market began to diverge.

2.3 BICS Industry: Market Value of Performance Optimization Has Increased Significantly

Among the top five BICS (Blockchain Industry Classification Standard, Blockchain Industry Classification Standard) secondary industries, the market value of performance optimization has increased by about 80%, accounting for a significant increase. The market value of operating platforms and wallet transactions has also increased to a certain extent.

The BICS secondary industry with a more obvious increase in the number of tokens this week is token asset management (increased by 2), while project services decreased by 3.

2.4 Market opinion: FCoin’s thunderstorm caused panic, and the long-term trend remains unchanged

On February 10, 2020, FCoin announced a temporary shutdown for maintenance, which failed to resume as scheduled. On February 11, another announcement was made saying that a system loophole that may cause risk control problems was discovered. The community and users started heated discussions and discussions that lasted for several days, and various rumors such as FCoin's bankruptcy and running away spread. On the evening of February 17, the FCoin Exchange released an announcement titled "The Truth about FCoin", announcing its official death. Then BTC fell below the two heart points of 10,000 and 9,500 US dollars in a row. However, the long-term trend has not changed, and the reshuffle of the exchange industry is also expected, so BTC holders need not worry too much.

In the long run, high-quality tokens have a lot of room for imagination. The 2020 halving market will start, and callbacks are rare opportunities to increase positions. Investors can make asset allocation according to their own conditions.

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Output and popularity: ETH computing power has grown significantly

This week, according to Google Trends, the search popularity of the term Bitcoin is 11, and the search popularity of Ethereum is 14, showing a drop in popularity.

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Industry news: The digital token industry needs to be standardized

4.1 The IRS invites cryptocurrency companies to discuss its enforcement efforts

The IRS has invited several cryptocurrency startups to an upcoming summit on March 3 to discuss its existing approach to taxing cryptocurrencies and its enforcement efforts. The summit, which will be held at the IRS headquarters in Washington, D.C., will feature four panel discussions on technology, issues facing exchanges, tax returns and compliance. The list of panelists has not yet been finalized.

4.2 Chairman of FSB: Regulators need to speed up the formulation of digital currency rules

Financial Stability Board (FSB) Chairman Randal Quarles said on Wednesday that global financial regulators risk being left behind by rapid innovation in the digital payments industry and therefore need to move more quickly to develop rules for digital currencies, or "stablecoins", according to Reuters. Quarles, who also sits on the Fed’s board of governors, said a task force is looking at policies to address the risks and benefits of stablecoins. Additionally, a possible regulatory response will be open for public consultation in April.

4.3 Sweden's central bank "tests" digital currency and starts testing plan

The Riksbank has reportedly begun testing its digital currency, the e-krona. It is reported that the Riksbank has been working on a pilot program for the "e-krona" as early as 2017 in response to the rapid decline in cash usage in recent years. In the test environment, participating users can store digital currency in electronic wallets, and perform operations such as payment, deposit and withdrawal through mobile phone applications. The pilot program will run until February 2021. At present, the Riksbank does not plan to promote it on a large scale.

Note:

Due to some reasons, some nouns in this article are not very accurate, mainly such as: general certificate, digital certificate, digital currency, currency, token, crowdsale, etc. If readers have any questions, they can call or write to discuss together.