FCoin announced it would reopen the exchange and draw a repayment scheme thanks to community cooperation, but can it compensate the thousands of Bitcoins it lost?
The FCoin exchange has officially announced that it will relaunch operations. A committee was formed after the exchange announced insolvency, promising to eventually return users’ funds.
The exchange’s existing team will resume the operation of the FCoin and FMex websites, handing them over to an “interim committee” led by community representatives. The announcement was made on Feb. 27 on FCoin’s support page.
The community will draft a compensation plan for the users affected by the insolvency. No details are available, with the announcement suggesting that it could be a mix of creditor’s rights or company equity.
Finally, after the payment plan is complete, the exchange’s ownership will supposedly be handed over to the community. No concrete launch dates were announced though.
Exit scam allegations
The FCoin debacle was seen by many in the crypto community as an attempt to perform an exit scam.
The exchange’s founder, Zhang Jian, motivated the loss with “poor auditing” and “financial difficulties.” As Cointelegraph reported, the exchange used a peculiar “trans-fee mining” model where users were fully compensated for their trading fees with the platform’s native token.
As the price of the token plunged later in 2019, Jian claimed that the exchange used its own resources to prop up its price. Those alleged attempts proved to be unsuccessful.
Critics point to peculiar withdrawal patterns on the blockchain to make the exit scam argument. Blockchain analysts argue that the exchange’s wallet made regular transfers of 100 and 150 Bitcoins (BTC) to other exchanges, such as Huobi. Dovey Wan, a founding partner of Primitive Crypto, argued that even the regularity of the amounts by itself is suspicious.
Will FCoin make users whole?
The exchange is currently allowing manual withdrawals for some users who perform the relevant procedures on a dedicated website. Jian is seemingly reviewing the requests manually.
By FCoin’s own estimates, the insolvency amounts to 7,000 to 13,000 BTC, or $61 million to $115 million at press time. It is difficult to expect that users would be willing to trade on the exchange given its tarnished reputation. Repaying such large amounts might thus be unfeasible.
The situation draws some parallels to the Wex.nz exchange, which was launched in September 2017 in response to the shutdown of the BTC-e exchange by authorities. BTC-e’s alleged founder, Alexander Vinnik, was also arrested as part of the operation.
The “new” exchange was only able to recover 55% of users’ funds, beginning a user repayment scheme based on an “I owe you” token. Approximately one year later, the exchange froze withdrawals and was blacklisted by Binance. Its founder was arrested by Italian authorities in 2019.
With some legal experts arguing that FCoin is a thinly-disguised Ponzi scheme, in addition to China’s witch hunt against cryptocurrency exchanges, its founder may find himself in legal troubles as well.
Source: Cointelegraph https://cointelegraph.com/