$125 000 000 USD
DESCRIPTION OF EVENTS
“Less than two years after bursting onto the scene, Chinese crypto exchange FCoin has shut down its operations. The platform, founded by Zhang Jian, also says it may be unable to pay the 7,000 to 13,000 Bitcoin (BTC) — about $67 million to $125 million — that is owed to its customers.” “While FCoin was pulling in large transaction volumes, the back-end architecture that ought to prevent any abuse of the system was not yet in place.” “poor back-end controls on the exchange meant that some users were receiving fee reimbursements in excess of the stipulated amounts prescribed by the model.”
Whether people want to call something poor auditing or an exit scam, the end result is that investors lose their funds. Any model which deals with partial reserves, or is unaware of the reserve level, is subject to this risk. China (just like Canada) lacks any sort of solid regulatory framework for exchanges at all. It’s only fitting we should see yet another exchange collapse while I’m in the midst of writing this post.
HOW COULD THIS HAVE BEEN PREVENTED?
When countries and governments prevent legitimate entities from operating exchanges, the result is a market void that is often filled with criminals. Where identities of operators are known and the funds are stored in a proper multi-signature wallet, a situation where one party takes the funds has never happened. You can also be certain that there was no auditing happening, and the exchange likely hadn't contemplated any hot wallet contingencies.